Crowd Still At Historically High Levels of Fear
All the major equity indexes closed higher Thursday with positive Nasdaq internals, while the NYSE had positive breadth but negative up/down volume. All closed near their highs of the session. While there were no resistance violations, two more of the indexes closed above their near-term downtrend lines that now find all the index charts near-term neutral. More stochastic bullish crossovers were registered as well.
The data finds the McClellan OB/OS Oscillators neutral. However, investor sentiment (contrarian indicator) still finds the crowd quite fearful and near record levels, offering a potential market boost. So, as the SPX forward 12-month P/E is still trading at a discount to ballpark fair value, we are a bit more encouraged but need to see resistance violations to become more confident regarding further progress.
On the charts, all the indexes closed lower yesterday with generally positive internals.
- All closed near their highs of the session as buying remained strong into the close.
- The DJT and RTY managed to close above their near-term downtrend lines, turning said trends to neutral from bearish as are the rest of the indexes.
- Cumulative breadth remains neutral for the All Exchange, NYSE and Nasdaq although showing some improvement.
- The SPX, DJI, and RTY registered bullish stochastic crossovers as did the COMPQX and NDX in the previous session. They add a little positive weight to the scale, in our opinion.
Regarding the data, the McClellan OB/OS Oscillators are still neutral (All Exchange: +19.95 NYSE: +0.07 Nasdaq: +36.79).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 9% and still well below the 25% trigger line, remaining bullish.
- The Open Insider Buy/Sell Ratio dipped to 81.6 as insiders backed off somewhat from their recent buying, staying neutral.
- On the other hand, the detrended Rydex Ratio remains very bullish -2.31 as the leveraged ETF traders continue to be highly leveraged short and represent pent up demand.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.97 (page 8) as the crowd remains fearful.
- The Investors Intelligence Bear/Bull Ratio also remains on a very bullish signal and still near a decade peak of fear at 42.7/29.4. Such extreme levels of investor fear have typically presaged notable market rallies.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $236.37. As such, the SPX forward multiple is 16.1 and at a discount to the “rule of 20” finding ballpark fair value at 16.9.
- The SPX forward earnings yield is 6.23%.
- The 10-year Treasury yield closed lower at 3.07%. We view support as 3.0% and new resistance at 3.51%.
In conclusion, yesterday saw some continuation of recent strength that has yielded some signs of encouragement on the charts while sentiment remains extremely fearful and the SPX trading at a discount to ballpark fair value. As such, some clouds are lifting but, in our view, violations of resistance on the charts are still needed for strength to continue.