Good News for Stocks: Charts See Technical Improvements

 | Aug 03, 2018 | 12:14 PM EDT
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There is reason for optimism for the equity indices.

While the data continues to send a generally neutral message, we are encouraged by the issues discussed below that imply somewhat rosier near-term potential for the markets.

Charts

The only index to close lower Thursday was the Dow Jones Industrial Average as the rest posted gains. Internals were positive on the NYSE and NASDAQ.

Improvements on the charts were seen on the Nasdaq Composite (see below) and Nasdaq 100 (see below) as both closed above their short-term downtrend lines, turning their trends to neutral from negative, while also registering "bullish stochastic crossover signals." The same can be said for the S&P MidCap 400 (page 4), which also closed back above its 50-day moving average. The Russell 2000 closed back above its 50 DMA as well.

Source: Worden

Source: Worden

So, we now find all of the near-term trends for the indices in neutral with the exceptions of the DJIA and Dow Transports, which are positive. We would also note the cumulative advance/decline line for the NASDAQ turned neutral from negative. The All Exchange and NYSE A/Ds remain neutral.

Data

The bulk of the data continues its neutral message. All of the McClellan Overbought/Oversold Oscillators are neutral (All Exchange:-16.49/+17.71 NYSE:-16.81/+34.08 NASDAQ:-16.5/+4.91) as are the Equity Put/Call Ratio (0.58) and Open Insider Buy/Sell Ratio (44.2).

The Total and OEX Put/Call ratios are counterbalancing with a bullish 0.97 and bearish 1.72, respectively.

Valuation

The S&P 500 is trading at a forward P/E multiple of 16.7x 12-month earnings estimates of $169.06 per share, versus the "rule of 20" implied fair value of 17.0x. The "earnings yield" stands at 5.98%

Outlook

While we have not seen any significant breaks of resistance on the charts, there has been enough improvement to be a bit more optimistic when combined with the generally neutral data. Nonetheless, until we see said breaks of resistance, we are maintaining our near term "neutral/positive" outlook for the major equity indices.

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