NDX Makes New Closing High

The major equity indexes closed mixed yesterday, with negative internals on the NSYE and NASDAQ Composite as trading volumes declined on both exchanges from the prior session. The index charts saw a couple of positive technical events generated, but remain a mix of bullish, neutral and bearish near-term trends. The data remains mixed. However, the 1-day McClellan OB/OS Oscillators are not threatening at this point with one mildly oversold. So, while we are a bit more encouraged about the market’s near-term potential, there is not quite enough of a shift in the weight of the evidence to formally alter our current “neutral” macro-outlook.

On the charts, the major equity indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ as trading volumes dropped.

• On the plus side, the S&P 500, Dow Jones Industrial Average, COMPQX and NDX closed higher on the day with the COMPQX managing to close above resistance, turning its near-term trend to bullish from neutral.
• The NDX closed above resistance as well and posted a new all-time closing high.
• The rest of the indexes declined.
• So, we now find the near-term trends bullish on the COMPQX and NDX, neutral for the SPX, DJI, MID and VALUA and bearish for the DJT and RTY.
• Market breadth remains neutral for the All Exchange, NYSE and NASDAQ cumulative advance/decline lines. In our opinion, this continues to speak to the selectivity in the markets as previously discussed.
• No stochastic signals were generated.

The data finds all the McClellan 1-Day OB/OS are mostly neutral except for the NYSE that moved back into mildly oversold territory (All Exchange: -37.97 NYSE: -51.19 NASDAQ: -27.88). In our opinion, they do not present a threat at these levels.

• However, the psychology data remains a concern. The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains bearish at 1.17 as they remain leveraged long.
• This week’s contrarian AAII bear/bull ratio (24.5/41.67) remained in mildly bearish territory while the Investors Intelligence Bear/Bull Ratio (contrary indicator) continued to suggest an excess of bullish expectations on the part of investment advisors at a bearish 15.3/61.2. The lack of fear generated by Monday’s slide still implies too much bullish optimism remains present, in our opinion.
• The Open Insider Buy/Sell Ratio did see an uptick to a neutral 32.4. Insiders have been a bit more active on the buy side but not what we would consider impressive.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg at $200.08 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.7.
• The SPX forward earnings yield is 4.58%.
• The 10-year Treasury yield closed at 1.27%and near 1.3% resistance. We view support to be 1.13%. We are monitoring the yield for a possible violation of said resistance.

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In conclusion, the market route that occurred at the beginning of the week appears to be largely behind us. And while we are a bit more encouraged in our expectations, we are keeping our near-term macro-outlook for equities at “neutral” for now.

SPX: 4,234/4,369

DJI: 34,188/34,844

COMPQX: 14,475/14,717

NDX: 14,717/NA

DJT: 14,247/14,905

MID: 2,628/2,691

RTY: 2,120/2,225

VALUA: 9,145/9,550

Written By: Guy S. Ortmann, CMT