Data Leans Bullish, but Breadth Deteriorates

 | May 05, 2017 | 10:32 AM EDT
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The indices closed mixed again Thursday. However, internals were negative on both exchanges while volumes rose sizably on the NYSE and declined on the Nasdaq from the prior session. Two indices tested support but none were violated.

The data has turned to a mixture of mostly positive and neutral readings. Still, given the condition of weakening breadth and a combination of neutral and positive trends, we are maintaining our near-term "neutral" outlook for the major equity indices.

On the charts, the S&P 500 (SPX), Nasdaq Composite (COMPQX) and Dow Transports (DJT) closed higher as the rest declined. Breadth was notably weak on the NYSE as volumes rose, suggesting internal weakening of the number of bullish participants. Nasdaq internals were negative as well but on lighter volume.

While the Russell 200 Index (RTY) and Value Line Arithmetic Index (VALUA) tested support again, they managed to hold, leaving the SPX and COMPQX in short-term uptrends as the rest remain neutral.

We continue to note the "bearish divergence" on the Nasdaq, below, as the COMPQX has been hitting new highs while its advance decline is making lower lows. This condition may not be as strong a warning signal as if it was occurring on the NYSE, but it does indicate that its internal structure appears to be eroding. The NYSE is close to sending such a signal but we will not acknowledge one prior to an actual triggering.

The data finds all of the McClellan OB/OS Oscillators in neutral territory (All Exchange:-23.29/+19.92 NYSE:-33.54/+31.26 NASDAQ:-9.97/+12.27) as is the Openinsider Buy/Sell Ratio at 31.7. All of the Put/Call Ratios are on bullish signals (Total:0.91 Equity:0.77 OEX:057).

The crowd (contrary indicator) is long puts with the pros long calls. The Rydex Ratio remains a very bearish 67.9 as leveraged ETF traders continue their heavily leveraged long exposure.

Forward 12-month earnings estimates for the SPX from IBES of $134.44 per share leaves a 5.64 forward earnings yield on a 17.7x forward multiple, near a decade high.

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