Data Mixed Neutral & Positive
All of the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as volumes declined on both exchanges from those on Friday’s trade. A couple of positive technical events occurred on the charts while the data remains a mix of generally neutral and positive readings. We would note contrarian psychology data has improved. With the markets slightly undervalued via the “rule of 20” combined with the charts and data, we are maintaining our “neutral/positive” outlook for the major equity indexes.
On the charts, all of the indexes closed higher yesterday with positive internals on lighter volume with most closing near the lower end of their intraday ranges.
- Two technical events occurred with the DJI (page 2) closing above its 50 DMA while the DJT (page 4) closed above its short term downtrend line, turning said trend to neutral from negative.
- So the short term, trends are positive on the SPX (page 2), DJI and MID (page 4) with the rest neutral.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are positive with only the NASDAQ’s below its 50 DMA.
The data is mostly neutral.
- The 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:+36.68 NYSE:+49.15 NASDAQ:+26.343) in spite of the recent strength.
- The Open Insider Buy/Sell Ratio (58.0) and the % of SPX stocks above their 50 DMAs (55.1) are neutral as well.
- Psychology has actually improved further with the new AAII Bear/Bull Ratio (contrary indicator) seeing an increase in bearish sentiment in the face of the rally to 39.33/23.33. We view this lack of enthusiasm on the part of the crowd as a positive.
- The detrended Rydex Ratio (contrary indicator) at -1.59 also shows the leveraged ETF traders heavily short as they remain nonbelievers of the recent rally.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) remains negative at 18.5/49.0 but with a slight uptick in bearish sentiment.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX is $171.07, leaving the forward p/e at a 16.9 multiple while the “rule of twenty” finds fair value at 17.9 suggesting the SPX is slightly undervalued. This is based on the assumption that said estimates will hold. The shift in valuation has largely been due to the notable drop in the 10 Year Treasury yield to 2.14%. The earnings yield stands at 5.93%.
In conclusion, given the state of the charts, data and valuation, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.
DJI Closes Above 50 DMA
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