More New Closing Highs Within Split Trends
Guy S. Ortmann, CMT | Jul 06, 2021 09:27AM ET
Market Selectivity Persists
The major equity indexes closed mixed Friday with mixed internals on the NYSE and the NASDAQ internals negative on both counts as trading volumes declined on both exchanges from the prior session.
Several new closing highs were achieved on the index charts. However, market internals stress the increase in market selectivity regarding the number of participants showing strength. As such, the charts remain a split of bullish and neutral near-term trends.
Meanwhile, the data continues to send a generally nonthreatening and neutral tone, while forward 12-month consensus earnings estimates for the SPX from Bloomberg have seen a nice uptick now that Q2 is behind us.
As such, we have yet to see cause to alter our current “neutral/positive” macro-outlook for equities.
On the charts, the major equity indexes closed mixed Friday on lighter volume with positive breadth but negative up/down volume on the NYSE, while the NASDAQ was negative by both measures.
- Nonetheless, The SPX, DJI, COMPQX and NDX closed near their intraday highs with all posting new closing highs. The rest of the indexes declined.
- As such, the near-term trends remain bullish for the SPX, DJI, COMPQX and NDX with the rest in neutral trends.
- In our opinion, Friday’s action gave further evidence as to the selectivity of participants showing strength.
- Market breadth saw some improvement on the NYSE cumulative advance/decline line turning positive from neutral while the All Exchange and NASDAQ remain neutral.
- No stochastic signals were generated at the close.
The data finds the McClellan 1-Day OB/OS Oscillators still neutral and not yet threatening, in our opinion (All Exchange: -10.45 NYSE: -1.48 NASDAQ: -16.2).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped slightly to 1.19 but remains in bearish territory.
- Last week’s contrarian AAII bear/bull ratio (23.4/40.57) was little changed and remains mildly bearish while the Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a drop in bears and rise in bulls at a bearish 15.8/56.5.
- The Open Insider Buy/Sell Ratio rose to 29.2 but remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg jumping to $198.82, now that Q2 is behind us, for the SPX. As a result, the SPX forward multiple dipped to 21.9 with the “rule of 20” finding fair value at approximately18.6. The SPX forward earnings yield is 4.57%.
- The 10-year Treasury yield closed at 1.43. We still view support as 1.4% and resistance at 1.55%. The 10-year yield remains in a downtrend from its March peak that we view as a positive for equities in general.
Get The News You Want
In conclusion, we have yet to see enough of a shift in the weight of the evidence to alter our near-term “neutral/positive” macro-outlook for equities, although we reiterate the environment has become more selective, in our opinion.
SPX: 4,251/NA DJI: 34,500/NA COMPQX: 14,356/NA
NDX: 14,137/NA
RTY: 2,290/2,350 VALUA: 9,536/9,807
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