Nasdaq Charts May Be Deceiving

 | Aug 01, 2018 | 10:27 AM EDT
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Despite Tuesday's positive trading session, certain index charts remain negative. But are they really?

Let's take a closer look at the latest charts and data from the major equity indices and determine how it affects or near-term outlook for the market.

Charts

All of the indices closed higher Tuesday with increased volume and positive internals. A couple of positive technical events occurred in the form of the Dow Jones Transports closing above its near-term resistance level while the Nasdaq Composite (see below) and S&P MidCap 400 regained their 50-day moving averages that were violated at the close of the previous session.

Source: Worden

We would also note the stochastic levels for the Nasdaq Composite, Nasdaq 100 (see below) and MidCap 400 are now oversold but have not yet triggered bullish crossover signals. As such, the short-term trends cover all of the bases, with the Dow Jones Industrial Average and Transports positive, the S&P 500, Russell 2000 and Value Line Arithmetic Index neutral, while the Nasdaq Composite, Nasdaq 100 and MidCap 400 remain in short-term downtrends.

Source: Worden

The cumulative advance decline lines for the All Exchange and NYSE are neutral with the Nasdaq's negative and below its 50 DMA.

Data

The data continues its largely neutral message, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:-24.75/+25.67 NYSE:-10.0/+46.61 NASDAQ:-40.24/+8.77).

The Equity Put/Call Ratio (0.69) and OpenInsider Buy/Sell Ratio (44.6) are neutral while the Total P/C (contrary indicator) is a bullish 1.0 as is the OEX P/C at 0.92.

Valuation

The S&P 500 is trading at a P/E multiple of 16.7x forward 12-month earnings estimates of $168.48 per share, versus the "rule of 20" implied fair value multiple of 17.0x, with a 5.98% earnings yield.

Our Outlook

While some of the index charts remain negative, we suspect some of the prior market leaders with significant market capitalizations may be exerting enough influence to make things look a bit more negative than may actually may be the case. And though some shift in leadership may be at hand, we are maintaining our near term "neutral/positive" outlook for the indices based on the state of the charts and data.

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