Breadth Remains A Problem

Breadth Remains A Problem

Chart Trends Unchanged

Opinion

All of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as NYSE volumes declined from the prior session while NASDAQ volumes rose. No support levels or trends were violated on the charts but internal breadth weakened further and remains a concern. The data is mostly neutral with one cautionary signal while valuation remains elevated and at its recent peak level. Concerns about breadth and valuation remain. Yet we continue to suggest the mixed trends of the indexes should still be respected until proven otherwise.

  • On the charts, all of the indexes closed lower yesterday with broadly negative internals. The vast majority closed at or near their intraday lows but no support levels or near term trends were violated. However, the RTY (page 5) did close on support suggesting any further weakness would darken its outlook. All of the near term trends remain positive for the indexes with the one exception of the RTY being neutral. Cumulative breadth continues to be a concern for us as the All Exchange A/D has shifted from positive to neutral and the NASDAQ cumulative A/D has turned negative from neutral. The NYSE A/D remains positive but the weakening of the other breadth indicators suggests, once again, a narrowing of the number of stocks capable of posting gains. Selectivity has increased.
  • The data is mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:-25.91/+28.99 NYSE:-22.16/+46.73 NASDAQ:-32.33/+1463). The Equity (0.60), Total (.80) and OpenInsider Buy/Sell Ratio (47.3) are neutral as well. However, the OEX Put/Call Ratio remains bearish at 1.78 as the pros continue to be weighted in puts as they bet on further weakness.
  • In conclusion, unless we see a break in support or the near term trends on the charts, we continue to suggest the individual indexes should be respected for said trends. However, weakening of market breadth implying an increase in selectivity combined with extended valuation should temper enthusiasm.
  • Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.46 forward earnings yield on an 18.9 forward multiple.
  • : 2,589/NA
  • : 23,903/NA
  • : 6,759/6,910
  • : 6,224/6,409
  • DJT: 9,978/NA
  • : 1,893/NA
  • : 1,500/1,533
  • VALUA: 5,837/NA

(Why?)

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