Charts Continue To Improve |

The Song Remains Same: Near-Term Equity Market Outlook Remains Neutral

Data Staring To Tilt Toward Pause/Consolidation

All the major equity indexes closed higher yesterday with positive internals on the and as trading volumes rose on the NYSE and declined on the NASDAQ from the prior session. The charts saw some further improvements as did market breadth. However, the data dashboard is now sending signals suggesting we may be entering a period of slower progress with potential for a pause/consolidation of recent gains. As such, we are maintaining our near-term “neutral/positive” outlook for the equity markets given the state of the charts and data.

On the charts, the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes rose on the NYSE and declined on the NASDAQ.

  • More bullish technical events were registered on the charts with the (page 2) and VALUA (page 5) closing above their near-term resistance levels while the DJT (page 5) made another new closing high.
  • So, all the indexes remain in near-term uptrends and above their 50 DMAs.
  • Market breadth improved as well with the All Exchange, NYSE and NASDAQ cumulative advance/decline lines staying positive and above their 50 DMAs.
  • We would note all the stochastic readings are now overbought. However, no bearish crossover signals have been generated thus far.

The data has turned a bit more cautionary for the short term and, in our opinion, may be forecasting an entry into a period of slower progress with a pause/consolidation of recent gains.

  • The 1-day McClellan OB/OS Oscillators increased their overbought conditions to somewhat notable levels (All Exchange: +94.82 NYSE: +96.59 NASDAQ: +95.11).
  • The Open Insider Buy/Sell Ratio (page 9) is neutral, declining to 34.2 while the detrended Rydex Ratio (contrary indicator page 8) shows the leveraged ETF traders increased their leveraged long exposure to +1.04. The dynamic of insiders increasing their selling activity while the Rydex finds the leveraged ETF exposure at increasingly higher levels has frequently been an precient inflection signal.
  • This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw another slight rise in bearish sentiment to 21.8/52.5 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 43.15/27.72.
  • The counterintuitive % of SPX issues trading above their 50 DMAs is neutral at 52.9%.
  • The valuation gap remains extended with the SPX forward multiple lifting to 22.2 with consensus forward 12-month earnings estimates from Bloomberg dipping to $155.51 while the “rule of 20” finds fair value at 19.2. However, said valuation extension has been present for the past several months.
  • The SPX forward earnings yield is 4.51% with the at 0.77%.

In conclusion, while the charts are positive, the data has increased its signals suggesting we may be entering a period where a pause/consolidation of recent gains may be becoming more likely.

SPX: HVS3,361/3,500 DJI: HVS27,768/28,424

COMPQX: HVS10,986/11,523

NDX: HVS11,156/11,572 DJT: HVS11,268/NA MID: 1,908/2,007

RTY: HVS1,550/1,625 VALUA: HVS6,342/HVR6,743

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Guy S. Ortmann, CMT

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