Yellow lights flash as 2 data points are now on bearish signals

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As new closing highs for major stock indices continue to be set, two key data points are both blinking yellow as 12-month earnings estimates have weakened the S&P 500 a bit.

On the cards

The DJIA (see below), Dow Jones Transport and MidCap 400 closed higher on Friday as the rest posted losses in a mixed session with mixed insiders.

Source: Worden

The NYSE saw slightly positive width but negative rise / fall volume while the Nasdaq did the opposite.

The DJIA and MidCap 400 managed to record new closing highs while the Dow Transports closed above resistance.

When it comes to short-term trends, all of them remain positive, as do the cumulative rise / fall lines for the All Exchange, NYSE and Nasdaq.

However, stochastic levels remain quite overbought although no bearish crossover signal has appeared at this point.

Market data

The data finds the McClellan 1-Day Overbought / Oversold oscillator to be neutral across the board (All Exchange: +33.23 NYSE: +46.55 Nasdaq: +24.46).

It should be noted that the Trendless Rydex Ratio (countercurrent indicator, see below), measuring the action of leveraged ETF traders, turned bearish as they extended their long effect exposure. leverage up to 1.24.

Rydex ratio with no trend is 1.24 (bearish)

In contrast, the open insider buy / sell ratio remains bearish at 21.4 as insiders have used recent market strength to relax. In our view, their relationship suggests that some caution is currently warranted.

Last week’s contrarian AAII Bear / Bull ratio (36.43 / 30.5) remained slightly bullish with bears still outnumbering bulls. The Investors Intelligence Bear / Bull Ratio (22.7 / 42.1) (contrary indicator) remained neutral.

Evaluation and returns

The valuation finds that the consensus 12-month earnings estimate for Bloomberg’s S&P 500 plunges to $ 213.72. As such, the forward P / E multiple of the S&P is 21.3x, with the “rule of 20” finding the fair value to be approximately 18.3x.

The return on S&P futures earnings is 4.7%.

The 10-year Treasury yield closed lower at 1.66%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, this trend could prove problematic for equities.

Short term outlook

As new closing highs continue to be set, the OI B / S and the trend-less Rydex ratio are both flashing yellow as 12-month earnings estimates for the S&P 500 have weakened a bit. As such, we believe that a short-term “neutral” macro perspective for equities is most appropriate.

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