Indexes Bounce On Lighter Volume

Indexes Bounce On Lighter Volume

All of the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as overall trading volumes slowed from the prior negative session. However, no technical events of import were generated on the charts, leaving all in short term downtrends. The data has turned back to neutral, including all of the McClellan 1-Day OB/OS Oscillators from yesterday’s pre-open oversold levels that we suspected might result in a near term bounce. As such, we have yet to see a sufficient shift in the weight of the evidence to alter our near term “neutral/negative” outlook for the major equity indexes.

On the charts, all of the major equity indexes closed higher yesterday with positive internals as trading volumes declined from the prior negative session.

. While we resist placing too much emphasis on recent trading volumes, the fact that down sessions have seen notably higher trading volumes than up sessions suggests, in our opinion, the presence of institutional distribution.

. No technical events of import were generated on the charts.

. Thus all remain in their near term downtrends and below their 50 DMAs.

. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative while the high “volume at price” (VAP) levels are resistant on all but the SPX (page 2), DJI (page 2) and NDX (page 3) where they are supportive.

. In our view, the cumulative A/Ds and VAP levels describe a bifurcated market as mentioned in yesterday’s note.

The data is entirely neutral as all of the 1 day McClellan OB/OS Oscillators relieved yesterday’s pre-open oversold condition (All Exchange:-44.49 NYSE:-47.52 NASDAQ:-44.12).

. The detrended Rydex Ratio (contrary indicator) is a neutral -0.66 as is the % of SPX stocks trading above their 50 DMAs at 38.6%.

. The AAII Bear/Bull Ratio (contrary indicators) remains neutral at 33.0/28.33. However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) remains bearish at 17.1/55.3 suggesting an excess of bullish sentiment on the part of investment advisors.

. The Open Insider Buy/Sell Ratio is also neutral at 55.4.

. Valuation seems appealing with forward 12 month earnings estimates for the SPX dipping to $174.71 via Bloomberg, leaving the forward p/e at a 16.7 multiple while the “rule of twenty” finds fair value at 18.4.

. The 10-Year Treasury yield stands at 1.59%.

. The earnings yield is 5.99%.

In conclusion, yesterday’s gains did not result in any technical or data signals that would warrant altering our current near term “neutral/negative” outlook for the major equity indexes.

SPX: 2,893/2,956
DJI: 26,027/26,562
Nasdaq: 7,787/7,995
NDX: 7,538/7,781
DJT: 9,818/10,183
MID: 1,861/1,903
Russell: 1,471/1,515
VALUA: 5,901/6,076