Most Indexes Break Support
McClellan 1-Day OB/OS Oscillators Stay Neutral As Consolidation Continues
Our next Morning Note will be issued on Apr. 12.
The major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as trading volumes rose from the prior session. The weakness resulted in all but one of the index charts violating support while cumulative market breadth turned negative.
Meanwhile, the data remains largely neutral, including the 1-day McClellan OB/OS oscillators, all of which suggest the recent consolidation of the March rally may not yet be completed. The one data point that remains on the positive side of the scale is the extreme degree of bearish investor sentiment which is a contrarian indicator.
However, that side of the scale needs more weight of the evidence added before assuming said correction has likely been completed.
On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ on higher trading volumes. The only index that did not violate support was the RTY. However, the bulk of the indexes, in our opinion, remain near-term neutral trends given the vertical nature of the March rally. As of the close, only the DJT turned near-term negative.
Unfortunately, market breadth soured further as well with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turning negative with all below their 50 DMAs.
No stochastic signals were generated. However, both the DJT and MID are now oversold with the DJT extremely so. Yet, bullish crossovers have yet to be generated.
The data finds the McClellan 1-Day OB/OS remain neutral despite of yesterday’s declines (All Exchange: -18.66 NYSE: -22.2 NASDAQ: -14.52). They are not oversold.
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 54%, remaining neutral.
- The Open Insider Buy/Sell Ratio declined to 37.8, also staying neutral.
- The detrended Rydex Ratio (contrarian indicator) dipped to +0.37 and remains neutral versus its prior bullish implications near the March lows.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) slipped to 1.29 as the crowd became a bit less cautious, dropping its forecast to bullish from very bullish. Meanwhile the Investors Intelligence Bear/Bull Ratio (contrary indicator) is now 34.1/37.7 remaining very bullish, staying near peak fear levels seen 4 times over the past decade.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $234.25. As such, the SPX forward multiple stands at 19.1 with the "rule of 20" finding ballpark fair value at 17.4.
- The SPX forward earnings yield is now 5.23%.
- The 10-year Treasury yield closed higher at 2.61 after testing 2.64% resistance. We still view resistance as 2.64% while support is raised to 2.32%.
In conclusion, the consolidation of the March rally continued with no signs generated at this stage to suggest it’s complete. We will keep our eyes open for any positive implications. However, yesterday’s action was unable to supply them.
SPX: 4,4494,549 DJI: 34,086/34,759 COMPQX: 13,830/14,202 NDX: 14,258/14,778
DJT: 14,465/15,177 MID: 2,597/2,682 RTY: 2,015/2,060 VALUA: 9,323/9,9493