More New Closing Highs Printed

Data Remains Little Changed

All the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ but lower trading volumes than the prior session. Several of the index charts posted new closing highs while another saw its near-term trend shift to neutral from negative. Meanwhile, the data was little changed, leaving the McClellan OB/OS Oscillators in neutral while sentiment data continues to suggest an excess of bullish sentiment persists. Given the lack of important shifts from the charts and data, we are maintaining our near-term “neutral/positive” macro-outlook for equities.

On the charts, all the indexes closed higher Friday with positive internals on the NYSE and NASDAQ.

• Most closed at or near their intraday highs except for the COMPQX (page 3) and NDX (page 3) closing near their midpoints as they continue their recent underperformance.
• The SPX (page 2), DJI (page 2), DJT (page 4), MID (page 4) and VALUA (page 5) posted new all-time closing highs.
• The COMPQX (page 3) did manage to close above its near-term downtrend line while flashing a bullish stochastic crossover signal and turned neutral from negative with the RTY (page 5) staying neutral.
• The NDX (page 3) closed at its downtrend line and remains negative.
• Positive market breadth, however, did not alter the current cumulative advance/decline lines for the All Exchange and NASDAQ that remain negative with the NYSE’s positive.

On the data, the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: +7.89 NYSE: +27.78 NASDAQ: -8.7).

• Sentiment indicators were, once again, little changed and remain at somewhat cautionary levels. The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders is still in bearish territory at 1.27.
• Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a drop in bullish sentiment at 16.5/59.2 as did the AAII bear/bull ratio at 23.6/49.7. However, both of those sentiment contrarian indicators remain in bearish territory.
• The Open Insider Buy/Sell Ratio remains neutral at 25.9 as insiders continue to sit on the sidelines.
• Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $188.86. This leaves the SPX forward multiple at 22.4, down from its recent peak of 22.9. The “rule of 20” still finds fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
• The SPX forward earnings yield dipped to 4.46%.
• The 10-year Treasury yield closed at 1.58%. We continue to view 1.55% as support with 1.63% as resistance.

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In conclusion, the recent split performance of the indexes has yet to show signs of abating, with most of them in near-term bullish trends, while data still suggests we maintain our near-term “neutral/positive” macro-outlook for equities.

SPX: 4,1940/NA

DJI: 34,037/NA

COMPQX: 13,500/13,881

NDX: 13,316/13,755

DJT: 15,270/NA

MID: 2,702/NA

RTY: 2,250/2,300

VALUA: 9,385/NA

Written By: Guy S. Ortmann, CMT