Nasdaq Remains on a 'Bearish Divergence' Signal

 | May 10, 2017 | 9:32 AM EDT
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The indexes closed mixed yesterday, with negative internals on the NYSE while the Nasdaq internals were positive. Volumes rose on both exchanges from the prior session. No technical events of major import occurred, while the majority of the data remains in neutral territory. As such, there is no evidence being presented to alter our near-term "neutral" outlook for the major equity indexes.

On the charts, the Nasdaq, Dow Jones Transports and Value Line Arithmetic Index closed higher yesterday, with the Nasdaq making another new closing high.

The rest of the indexes declined. All of the near-term trends were left intact, with the S&P 500 and Nasdaq in short-term uptrends, with the rest in neutral "rectangle" patterns. No support or resistance levels were violated.

However, the Nasdaq Advance/Decline line remains on a bearish divergence signal, as the index is making higher highs and lows while the A/D is making lower highs and lows, describing an erosion of breadth.

We reiterate that the Nasdaq divergence is not as significant a warning signal as if it was taking place on the NYSE. Nonetheless, it surely cannot be seen as supportive.

Almost all of the data are neutral, including all of the McClellan OB/OS Oscillators (All Exchange:-9.37/+24.76 NYSE-24.13/+33.48 NASDAQ:-5.54/+17.244).

The Total, Equity and OEX Put/Call Ratios are all neutral as well, at 0.74, 0.63 and 1.25 respectively. The Open Insider Buy/Sell Ratio is also neutral at 30.3.

So, our song remains the same. The charts and data continue to suggest that a near-term "neutral" outlook for the major equity indexes is the most probable prognosis. However, Nasdaq internals suggest an internal weakening within that market.

Forward 12-month earnings estimates for the SPX from IBES of $134.58 leave a 5.63% forward earnings yield on a 17.8x forward multiple, near a decade high.

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