Sunday, March 26, 2023

Most Index Chart Trends Remain Neutral


Data Generally Neutral

The major equity indexes closed mostly higher Friday except for the posting a minor loss. Internals were positive on the and as trading volumes declined from the prior session. No technical events of import were generated on the charts although some support and resistance levels were tested. Most remain in neutral near-term trends except for two that are positive. Breadth remains neutral as well. There was little to no change on the data front that is also generally neutral, while valuation and some psychology levels are still rather cautionary. As such, we see no shift in the evidence to cause a change in our current near-term “neutral” outlook for the equity markets.

On the charts, the bulk of the equity indexes closed higher Friday except for the DJI posting a loss.

  • No violations of support/resistance/trend were registered, leaving all but the DJT (page 4) and VALUA (page 5), that remain positive, in short term natural trends.
  • The NDX (page 3) tested support while the MID (page 4) and VALUA tested resistance.
  • Breadth was positive on the day but left the cumulative advance/decline lines for the All Exchange, NUYYSE and NAASDAQ neutral and above their 50 DMAs.

The data is little changed.

  • The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange: +15.0 NYSE: +18.01 NASDAQ: +13.21).
  • Psychology continues to be of some concern, in our opinion, as the Open Insider Buy/Sell Ratio (page 9) dipped to a neutral 34.3 while the Rydex Ratio (contrarian indicator) remains bearish with the leveraged ETF traders extended in their leveraged long exposure lifting to a bearish 1.17 and last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remaining bearish at 21.2/56.6. New AAII and II Bear/Bull Ratios will be released tomorrow. We continue to monitor the high levels of bullish opinions on the part of investment advisors and leveraged ETF traders as potential cautionary signals as they leave little room for disappointment on their part, in our view.
  • The valuation gap remains extended with the forward multiple at 22.2 with consensus forward 12-month earnings estimates from Bloomberg rising to $156.13 while the “rule of 20” finds fair value at 19.2. Said valuation extension has been present for the past several months.
  • The SPX forward earnings yield is 4.5% with the Treasury yield at 0.84%.

In conclusion, we have yet to see enough evidence presented to alter our current near-term “neutral” outlook for the equity markets.

SPX: HVS3,419/3,586

DJI: HVS28,216/29,148

COMPQX: HVS11,367/12,065

NDX: HVS11,563/12,1962

DJT: 11,403/NA MID: HVS1,966/HVR2,024

RTY: HVS1,600/1,650 VALUA: HVS6,4325/HVR6,747

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