Indexes Closed Mixed, “Neutral” Near-Term Macro-Outlook For Equities

Detrended Rydex Ratio Turns Bearish

The major equity indexes closed mixed Friday with mixed internals on the NYSE and NASDAQ as NYSE volumes fell and NASDAQ volumes rose from the prior session. Two new closing highs were registered on the charts as all remain in near-term uptrends.

While the data finds the McClellan OB/OS Oscillators neutral, both the Open Insider Buy/Sell Ratio and Detrended Rydex Ratio are now on bearish signals as forward 12-month consensus earnings estimates from Bloomberg took a dip. As such, we remain of the opinion that a “neutral” near-term macro-outlook for equities is appropriate.

On the charts, the DJI, DJT, and MID closed higher Friday as the rest posted losses on a mixed session with mixed internals.

• The NYSE saw slightly positive breadth but negative up/down volume while the NASDAQ did the opposite.
• The DJI and MID managed to register new closing highs while the DJT closed above resistance.
• Regarding near-term trends, all remain positive as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
• However, the stochastic levels remain quite overbought, although no bearish crossover signals have appeared at this point.

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The data finds the McClellan 1-Day OB/OS Oscillator neutral across the board (All Exchange: +33.23 NYSE: +46.55 NASDAQ: +24.46).

• Of note, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders turned bearish as they extended their leveraged long exposure up to 1.24.
• In contrast, the Open Insider Buy/Sell Ratio remains bearish at 21.4 as insiders have been using recent market strength to lighten up. In our opinion, their relationship suggests some caution is warranted currently.
• Last week’s contrarian AAII Bear/Bull Ratio (36.43/30.5) remained mildly bullish as bears still outnumber bulls. The Investors Intelligence Bear/Bull Ratio (22.7/42.1) (contrary indicator) remained neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $213.72 for the SPX. As such, the SPX forward multiple is 21.3 with the “rule of 20” finding fair value at approximately 18.3.
• The SPX forward earnings yield is 4.7%.
• The 10-year Treasury yield closed lower at 1.66%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, said trend could prove problematic for equities.

In conclusion, while new closing highs continue to be established, the OI B/S and detrended Rydex Ratio are both flashing yellow warning lights as forward 12-month earnings estimates for the SPX weakened a bit. As such, we remain of the opinion that a “neutral” near-term macro-outlook for equities is most appropriate.

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SPX: 4,450/NA DJI: 35,028/35,653 COMPQX: 14,748/15,201 NDX: 15,009/15,512

DJT: 15,302/15,945 MID: 2,747/NA RTY: 2,280/2,390 VALUA: 9,646/NA

All charts courtesy of Worden

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Written By: Guy S. Ortmann, CMT