Indexes Decline As Charts Remain Positive
New Sentiment Data Continues At Historically High Bearish Levels
All the major equity indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as trading volumes declined on both from the prior session. Most closed near the midpoints of their intraday ranges. However, no trend lines or support levels were violated, leaving all in near-term uptrends.
On the data side, however, the McClellan 1-Day OB/OS Oscillators declined, but remain overbought while the new sentiment data (contrarian indicators) continues to find historically high levels of investor fear the over the past two decades have been coincident with important market rallies. As such, we remain of the opinion that due to the OB/OS and stochastic levels, some further consolidation of the recent sizable gains of last week is likely over the very near term.
On the charts, all the major equity index charts closed lower yesterday with negative internals on lower volume for the NYSE and NASDAQ. The SPX, COMPQX, and NDX closed near their intraday highs as the rest closed near their midpoints. All remain in near-term uptrends with only the NDX trading below its 50 DMA. Cumulative market breadth remains positive on the NYSE and NASDAQ while the stochastic levels are very overbought and in the high 90s but have yet to generate bearish stochastic crossover signals.
The data finds the McClellan 1-Day OB/OS oscillators dropping to overbought from very overbought and still suggesting some pause/consolidation over the near term, in our opinion (All Exchange: +76.17 NYSE: +77.11 NASDAQ: +76.74).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) dipped to 51%, staying neutral.
- The Open Insider Buy/Sell Ratio slipped to 50.9, also staying neutral.
- The detrended Rydex Ratio (contrarian indicator) was unchanged at -3.95, showing leveraged short exposure levels seen only four times in the past decade, each of which was followed by a significant rally.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.78 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 36.5/30.6, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX dropping to $227.65. As such, the SPX forward multiple 19.6 with the "rule of 20" finding ballpark fair value around 17.7.
- The SPX forward earnings yield is 5.1%.
- The 10-year Treasury yield closed up at 2.32. We view resistance as 2.4%. Support remains at 1.87%.
In conclusion, last week’s 6% gain for the SPX was the largest % weekly gain since November of 2020, in our view, a confirmation of the sentiment signals discussed in our comments. However, the OB/OS and stochastic levels still imply some pause/consolidation over the near term.
SPX: 4,330/4,476 DJI: 33,914/34,737 COMPQX: 13,500/13,944 NDX: 13,990/14,471
DJT: 15,745/16,585 MID: 2,642/2,717 RTY: 2,015/2,090 VALUA: 9,348/9,591