Some Index Trends Shift

Data Still Sending Mostly Neutral Projections

The major equity indexes closed higher Tuesday. However, the gains were achieved with negative breadth on both the NYSE and NASDAQ. The most important technical events of the session were two indexes shifting their near-term trends to positive from neutral while another shifted in the opposite direction. As such, we find the near-term chart trends evenly split between positive and neutral projections.

On the data side, most of the data points are neutral although there was an uptick in insider buying activity. As cumulative market breadth remains neutral, the increased selectivity of issues participating in index advances combined with the messages coming from the charts and data suggest we continue our near-term “neutral” macro-outlook for equities.

On the charts, the major equity indexes closed higher yesterday although decliners outweighed advancers on both the NYSE and NASDAQ as trading volumes rose on both exchanges. Most closed near the midpoints of their intraday ranges.

• On the positive side, the COMPQX and NDX closed above their near-term resistance levels, turning their near-term trends form neutral to positive.
• On the other hand, The DJT closed below its near-term uptrend line and is now neutral versus its prior positive slope.
• As such, the trends are evenly split with the COMPQX, NDX, MID, and VALUA positive with the rest neutral.
• Cumulative market breadth remains neutral on the All Exchange, NYSE and NASDAQ while no stochastic signals were generated at the close of the session.

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The data finds the McClellan 1-Day OB/OS still in neutral territory (All Exchange: -11.98 NYSE: -16.25 NASDAQ: -8.49).

• The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 1.25 but remains inside bearish territory as they continue their extended leveraged long exposure.
• The Open Insider Buy/Sell Ratio lifted to 32.7 from 27.2 as insiders did some buying but remains neutral.
• This week’s contrarian AAII Bear/Bull Ratio (0.65) remained neutral as does the Investors Intelligence Bear/Bull Ratio (22.3/56.5) (contrary indicator).
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifted to $214.15 for the SPX. As such, the SPX forward multiple is 22.0 with the “rule of 20” finding fair value at approximately 18.4.
• The SPX forward earnings yield is 4.56%.
• The 10-year Treasury yield closed at 1.63 We view resistance at 1.68% and support at 1.57%.

In conclusion, while the indexes gained yesterday, breadth was poor while market selectivity is notable, and the charts and data continue to send a somewhat mixed message. As such, we are maintaining our near-term macro-outlook for equities at “neutral”.

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SPX: 4,620/4,717A DJI: 35,904/36,203 COMPQX: 15,598/16,020 NDX: 15,975/16,380

DJT: 16,000/16,915 MID: 2,872/NA RTY: 2,400/2,450 VALUA: 9,937/10,151

All charts courtesy of Worden

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Written By: Guy S. Ortmann, CMT