Futures Looking Up, But, Equities May See Further Consolidation


Most Indexes Rise But On Poor Internals

Insider Buy/Sell Ratio:Rydex Ratio Weakens

The major equity indexes closed mostly higher yesterday except for the COMPQX posting a loss. While two of the indexes managed to register new closing highs, all the achievements occurred with generally negative internals that, in our opinion, makes the gains a bit more suspect.

While the saw positive breadth, up/down volume was negative while the was broadly negative on both counts. Yet, all remain in near-term uptrends except the DJT that is neutral.

The data still finds one of the McClellan OB/OS Oscillators overbought while the Open Insider B/S:Rydex Ratio dynamic slipped a bit. So, while the futures indicate a positive open this morning, we are keeping our near-term macro-outlook for equities at “neutral/positive” with the caveat that some further consolidation may be likely given the current state of the charts and data.

On the charts, the indexes closed mostly higher yesterday with the exceptions of the COMPQX posting a loss.

  • The gains occurred with positive breadth on the NYSE, but up/down volume was negative while the NASDAQ’s internals were broadly negative on both.
  • Nonetheless, the SPX and DJI managed to post new closing highs, leaving all but the DJT, that is neutral, in near-term uptrends.
  • Market breadth slipped on the NASDAQ’s cumulative advance/decline line from positive to neutral as the All Exchange and NYSE A/Ds remain positive.
  • All stochastic levels remain overbought but have not yet registered bearish crossover signals.

Looking at the data, the McClellan 1-Day OB/OS Oscillators remain neutral on the All Exchange and NASDAQ while the NYSE’s remains overbought (All Exchange: +35.22 NYSE: +65.1 NASDAQ: +14.56).

  • The % of SPX issues trading above their 50 DMAs rose to 70% and remains neutral but near the top end of its range for the year.
  • The Open Insider Buy/Sell Ratio dropped to 43.1, but also remains neutral. Meanwhile, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders rose to 1.18 and remains bearish. This shift in the Insider/Rydex dynamic may be worth noting.
  • This week’s contrarian AAII Bear/Bull Ratio dipped to 1.23, but remains bullish as the crowd remains nervous and unwilling to embrace recent market strength. But the Investors Intelligence Bear/Bull Ratio (24.4/55.0) (contrary indicator) did a total flip flop from the prior week as bulls now outweigh bears, yet remains neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting slightly to $216.15 for the SPX. As such, the SPX forward multiple moved up to 22.2 and near peak 2021 levels with the “rule of 20” still finding fair value at approximately 18.5.
  • The SPX forward earnings yield is 4.51%. We would note the forward estimates for the SPX may lift next week as has been the case throughout the year as a new forward quarter is added.
  • The lifted to 1.54%. We view support at 1.38% and resistance at 1.58%.

In conclusion, we remain “neutral/positive” in our near-term macro-outlook for equities.

: 4,694/NA : 35,960/NA COMPQX: 15,510/15,983 : 16,300/16,607

: 15,983/16,524 : 2,777/2,866 : 2,200/2,250 VALUA: 9,678/9,972

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