Split Index Performance Remains a Thorn for Market

 | Sep 05, 2017 | 10:08 AM EDT
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Several improvements have registered on the charts but still leave them bifurcated regarding performance. As a result of last week's strength, the McClellan 1-day Overbought/Oversold Oscillators are now overbought, suggesting some possible stall/retracement over the near term. Meanwhile, valuation remains extended as does margin exposure and investment advisor complacency.

On the charts, all of the indices closed higher Friday, with positive internals on the NYSE and Nasdaq. NYSE volumes rose while Nasdaq volumes dipped.

Source: Worden

The Nasdaq Composite Index, above, made a new closing high while the S&P 500 Index, below, S&P MidCap 400 Index and Value Line Arithmetic Index (VALUA) closed above near-term resistance, with the Russell 2000 and VALUA closing above their 50-day moving averages.

Source: Worden

Yet, even with all of these improvements, the indices remain split in terms of performance. Technical trends for the S&P 500, Dow Jones Industrials and Nasdaq Composite remain bullish while the rest of the indices remain well below their respective highs as they struggle to regain prior levels. This notable bifurcation continues to keep us in our quandary regarding overall market health.

In addition, the stochastic levels for the S&P 500, Nasdaq Composite, MidCap 400 and VALUA are now overbought.

The data is mostly neutral with the exception of the McClellan 1-day OB/OS Oscillators, which are overbought and implying a potential stall or retracement of recent gains (All Exchange: +73.31/+11.98 NYSE:+69.86/+16.65 NASDAQ:+78.5/+9.57). All of the 21-day levels are neutral as are the Total (0.83, Equity (0.56) and OEX (1.2) Put/Call Ratios. The Open Insider Buy/Sell Ratio (47.1) and AAII Bear/Bull Ratio (34.0/31.67) are neutral as well.

Advisor complacency persists with an 18.3/48.1 Investors Intelligence Bear/Bull Ratio (contrary indicator) while margin debt is 15.9%, higher on a year-over-year basis.

Forward 12-month earnings estimates for the S&P 500 from Bloomberg of $137.23 per share leave a 5.56% forward earnings yield on an 18.0x forward multiple, near a decade high.

So, while we continue to be concerned about high market valuation, margin debt, advisor complacency and split index performance, the large-cap indices have yet to flash important technical concerns, while the very near term may see some weakness.

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