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Whipsaw Action Requires a Shift in Our Market Outlook

This market is back to where it was last Tuesday.
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What a difference a week doesn't make.

In most cases, we are back where we were one week ago.

On the Charts

All of the major equity indexes closed higher Monday with positive internals on higher trading volume.

With the exceptions of the Dow Jones Transports and Russell 2000 (see below) all of the indices closed above their near-term resistance levels. Also, all but the Russell and Value Line Arithmetic Index were able to rise back above their short-term downtrend lines. In essence, we are back to where we were last Tuesday.

Only the Russell and Value Line remain in short-term downtrends as the rest are now neutral.

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Source: Bloomberg

Market breadth has improved as well, with the NYSE and Nasdaq cumulative advance/decline lines turning positive. The VALUA A/D is neutral.

High "volume at price" (VAP) levels are supportive on the DJIA and Nasdaq 100. They are resistance on the rest of the indices suggesting the potential for some stalling of progress for those in that condition.

We would also note that during the recent downdraft, the S&P 500, DJIA, Nasdaq Composite and 100 bounced off of their intermediate-term uptrend lines as the rest saw temporary violations. So, the intermediate trends remain intact.

Data

The data is largely neutral including all of the one-day McClellan Overbought/Oversold Oscillators (All Exchange:+22.25 NYSE:+24.3 Nasdaq:24.0). The OB/OS have not moved to overbought at this stage.

The detrended Rydex Ratio (contrary indicator) remains neutral at -0.47 as is the percentage of S&P 500 stocks trading above their 50-day moving averages at 42.8.

The new AAII Bear/Bull Ratio (contrary indicators) has actually turned bullish as the crowd now finds bears outnumbering bulls 38.6/27.33.

The Open Insider Buy/Sell Ratio remains neutral at 83.0.

Valuation

Valuation continues to appear appealing with the 12-month forward consensus earnings estimate from Bloomberg for the S&P at $172.16 per share, leaving the forward P/E multiple at 17.0x while the "rule of twenty" finds fair value at 18.4x.

The 10-year Treasury yield is 1.6%.

The earnings yield stands at 5.89%.

Our Outlook

The whipsaw action on the indices over the past week has shifted the chart trends and data back to levels requiring us to revise our near-term outlook to "neutral" from "neutral/negative." Current VAP levels, however, suggest any further short-term progress may be more hard won from this point.

At the time of publication, Ortmann had no positions in any securities mentioned.