Some Chart Support Levels And 50 DMAs Violated

McClellan 1-Day OB/OS Oscillators Neutral As Insiders Increase Selling Activity

All the major equity indexes closed lower yesterday with broadly negative internals on the NYSE and NASDAQ as trading volumes rose from the prior mixed session. All closed at or near their intraday lows as late session buying failed to appear. The charts saw two of the large-cap indexes close below support while several crossed back below their 50 DMAs, leaving said indexes in a mix of bearish and neutral near-term trends.

On the data front, the selloff failed to push the McClellan 1-Day OB/OS Oscillators into oversold territory as all remain neutral while there was a notable increase in insider selling activity. As well, the 10-year Treasury yield rose to just shy of our projected 1.55% resistance level. As such, we do not yet see enough evidence presented to alter our current near-term “neutral/negative” macro-outlook for equities.

On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as all closed at or near their intraday lows of the notable declines.

• The charts saw the SPX and NDX close below their near-term support levels and are both in near-term negative trends as is the COMPQX.
• The rest of the indexes are in sideways patterns currently.
• As well, the SPX, COMPQX, NDX, MID, and VALUA closed back below their 50 DMAs.
• Market breadth took a hit as yesterday’s very negative internals pushed the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ back into negative trends and below their 50 DMAs.
• Also, bearish stochastic crossovers were generated on the MID and VALUA.

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The data finds the McClellan 1-Day OB/OS Oscillators staying neutral despite the downdraft in prices (All Exchange: -17.92 NYSE: -29.43 NASDAQ: -10.05).

• The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dropped to 0.74 and is now neutral versus its prior bearish implications as the ETF traders deleveraged their long exposure, a slight improvement.
• The Open Insider Buy/Sell Ratio, however, is still neutral as it dropped to 32.3 from 70.8, suggesting insiders were participants on the sell side.
• This week’s contrarian AAII Bear/Bull Ratio (35.23/30.4) and Investors Intelligence Bear/Bull Ratio (22.3/47.1) (contrary indicator) both saw a drop in bulls. They remain neutral but suggested the crowd was starting to get nervous.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg declining to $206.68 for the SPX. As such, the SPX forward multiple is 21.1 with the “rule of 20” finding fair value at approximately 18.5.
• The SPX forward earnings yield is 4.75%.
• The 10-year Treasury yield rose to 1.53% and tested what we see as resistance at the 1.55% level. Support is 1.38%.

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In conclusion, the current state of the index charts, poor market breadth and data continue to suggest our near-term “neutral/negative” macro-outlook for equities is appropriate.

SPX: 4,322/4,434 DJI: 34,226/34,814 COMPQX: 14,530/14,872 NDX: 14,540/15,123

DJT: 14,161/14,603 MID: 2,645/2,706 RTY: 2,210/2,280 VALUA: 9,361/9,733

All charts courtesy of Worden

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Written By: Guy S. Ortmann, CMT