This Market Is Giving Us 'Positive' Vibes

 | Aug 07, 2018 | 2:49 PM EDT
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We now believe there has been a sufficient shift in the weight of the evidence to change our near-term outlook on the major equity indices. What's changed? Several technical improvements were seen Monday on the charts of the major equity indices. Overall market breadth improved as well.

Let's break it all down for you.

Charts

All of the indices closed higher Monday with positive internals on the NSYE and NASDAQ. Several technical improvements were seen as the Nasdaq Composite (see below), Nasdaq 100, Dow Jones Transports, S&P MidCap 400 and Value Line Arithmetic Index all closed above their respective near-term resistance levels.

Source: Worden

Both the MidCap 400 (see below) and Value Line index managed to register new closing highs.

Source: Worden

Overall market breadth improved as well, with both the All Exchange and NYSE cumulative advance/decline lines turning positive from neutral. The NASDAQ cumulative A/D remains neutral.

So, we now find the short-term trends for the indices primarily positive with the exception of the S&P 500 and Russell 2000 remaining neutral.

Data

The data is generally neutral, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:-0.34/-1.84 NYSE:+6.33/+16.42 NASDAQ:-6.61/-17.4).

The Equity Put/Call Ratio (0.62), Open Insider Buy/Sell Ratio (43.9) and new AAII Bear/Bull Ratio (27.33/31.33) are all neutral as well. The Total P/C at a bullish 0.93 is being counterbalanced by a bearish 1.44 OEX Put/'Call Ratio.

Valuation

The S&P 500 is trading at a forward P/E multiple of 16.9x 12-month earnings estimates of $169.01 per share, versus the "rule of 20" implied fair value of a 17.1x multiple. The "earnings yield" stands at 5.93%.

Outlook

Given the improvement on the charts and market breadth with a lack of onerous data signals, we believe there is enough improvement in the weight of the evidence to change our near-term outlook for the major equity indices to "positive" from "neutral/positive."

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