Near Term Negative Outlook Remains

The major equity indexes closed mixed Friday with positive internals on the while those on the were negative. Trading volumes declined on both exchanges from the prior session. The charts saw a mix of both positive and negative technical events generated although no support or resistance levels were violated, leaving most in neutral trends.

The data remains generally neutral as well. We would note the forward 12-month consensus earnings estimates from Bloomberg saw a spike as Q3 2021 is now added to that data. Nonetheless, by our work, the SPX remains overvalued, although less so than before. While the pop in SPX estimates is encouraging, our discipline suggests we have yet to see enough of a shift in the evidence to alter our current near-term “negative” outlook for the equity markets in aggregate.

On the charts, the indexes closed mixed Friday with positive NYSE internals and negative NASDAQ internals as trading volumes declined on both exchanges.

  • Positive technical events occurred with the MID (page 4) closing above its 50 DMA while the VALUA (page 5) closed above its near-term downtrend line, turning that trend to neutral from negative.
  • On the other hand, the SPX (page2), COMPQXX, (page 3) and NDX (page 4) closed below their 50 DMAs with the NDX also closing below its near-term uptrend line and is now neutral.
  • Regarding short term trends, all are neutral except for the COMPQX staying positive.
  • The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are short-term positive but negative intermediate term.
  • The COMPQX and NDX stochastic readings remain overbought.

The data remains mixed.

  • The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange: +31.8 NYSE: +36.6 NASDAQ: +29.5).
  • The Open Insider Buy/Sell Ratio (page 9) is neutral at 62.1 as insiders have slightly decreased buying activity.
  • However, the detrended Rydex Ratio (contrary indicator page 8) remains bearish at +0.74 as the leveraged ETF traders maintained their leveraged long exposure.
  • Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a slight rise in bearish sentiment to 19.4/51.5 yesterday. While not conclusive, it suggests there may be potential for the beginning of an important sentiment shift to the bearish camp should the markets slip further.
  • The counterintuitive % of SPX issues trading above their 50 DMAs is neutral at 50.7%.
  • The valuation gap remains extended, in our opinion, although the SPX forward multiple shrank to 21.5 from 23.0 as consensus forward 12-month earnings estimates from Bloomberg jumped to $155.67 with the inclusion for Q3 2021 estimates while the “rule of 20” finds fair value at 19.3.
  • The SPX forward earnings yield is 4.65% with the at 0.7%.

In conclusion, while the pop in forward earnings estimates for the SPX is an obvious positive, when the data dashboard as a whole and charts are placed on the scales, they suggest we keep our near-term “negative” macro outlook for the equity markets in place for now.

SPX: 3,316/3,382            : 27,132/27,786                  COMPQX: 10,986/11,315      

: 11,156/11,572        DJT: 11,086/11,546                 MID: 1,818/1,899  

RTY: 1,450/1,500            VALUA: 6,199/6,388

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