S&P 500 Reached New Closing High With Possible Top Signal

The major equity indexes closed mixed Tuesday with negative internals on the NYSE while the NASDAQ saw negative breadth but positive up/down volume. While some new closing highs were achieved, all the indexes closed near their lows of the day, creating some potential near-term topping candlestick chart signals.

Near-term trends for the indexes were unchanged as all remain positive as do the cumulative advance/decline lines. However, the data is still sending some cautionary signals from the detrended Rydex Ratio versus the Insider Buy/Sell Ratio as discussed below. So, given the data setup combined with some potentially negative chart signals, we are maintaining our near-term macro-outlook for equities at “neutral.”

On the charts, the major equity indexes closed mixed yesterday with generally negative internals as all closed at or near their lows of the day.

• The SPX, DJI, COMPQX, NDX, and DJT closed higher as the rest declined.
• Of note, all closed near their intraday lows with generally negative internals.
• While the SPX, DJI and DJT made new closing highs, the SPX plotted a potentially negative candlestick chart pattern called an “evening star.” Briefly, it is a three-day pattern where the first day sees decent gains followed in the next session where the chart gaps up, runs but ends the day back down near or below its opening level. If, on the third day, the chart closes well within the range of the first day’s trade, the pattern is complete and suggest a short-term top. Today’s close will determine if the pattern will be completed.
• However, all the charts remain in near-term uptrends and above their 50 DMAs as market cumulative breadth remains positive as well.
• The stochastic levels that remain overbought weakened a bit but have yet to register bearish crossover signals.

The data finds the McClellan 1-Day OB/OS Oscillator are neutral (All Exchange: +33.82 NYSE: +39.53 NASDAQ: +29.34).

• As noted yesterday, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders moved into bearish territory as they extended their leveraged long exposure. It remains bearish at 1.16.
• In contrast, the Open Insider Buy/Sell Ratio sees insiders intensifying their selling to a bearish 18.2 and near peak levels of selling activity via this indicator. While not perfect, their relationship suggests some caution is warranted currently.
• This week’s contrarian AAII Bear/Bull Ratio (32.13/36.97) turned neutral with the increase in bulls. The Investors Intelligence Bear/Bull Ratio (23.9/43.2) (contrary indicator) remained neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $213.58 for the SPX. As such, the SPX forward multiple is 21.4 with the “rule of 20” finding fair value at approximately 18.4.
• The SPX forward earnings yield is 4.67%.
• The 10-year Treasury yield closed lower at 1.62%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, said trend could prove problematic for equities.

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In conclusion, the cautionary signals discussed above suggest we keep out “neutral” near-term macro-outlook for equities in place.

SPX: 4,525/NA DJI: 35,028/35,653 COMPQX: 15,017/15,373 NDX: 15,009/15,680

DJT: 15,302/15,945 MID: 2,747/NA RTY: 2,280/2,330 VALUA: 9,646/NA

Written By: Guy S. Ortmann, CMT