All Index Charts Remain Bearish; Data Remains Very Positive But Lacking Impact

All the major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as trading volumes dipped slightly from the prior session.

All closed at or near their intraday lows as one index violated support. The end result was all the index charts remain in near-term downtrends with no signs of reversal at this stage.

On the other side of the scales, however, the data continues to send very positive projections. Yet, said projections have existed for the past several days without having any impact on the market downtrends.

As such, we reiterate our opinion that the data needs to be confirmed by chart and breadth improvement to become more optimistic, despite the fact the SPX is now trading at a discount to its forward 12-month p/e ballpark valuation.

On the charts, all the major equity indexes continued to slide yesterday with negative internals on the NYSE and NASDAQ. All closed near their lows of the day with the COMPQX closing below support. All the charts remain in near-term downtrends with no signals appearing that would suggest a relief of recent selling pressure.

As well, market breadth continued to deteriorate as the cumulative advance/decline lines for the All Exchange, NYSE, and NASDAQ remain negative and making lower lows.

Stochastic levels are very oversold but have yet to generate bullish crossover signals. The near-term trends should be respected until proven otherwise, in our opinion.

Yet the data continues to send some very bullish signals with investor sentiment (contrarian indicators) remaining at historically high levels of bearish expectations.

• The McClellan 1-Day OB/OS oscillators are very oversold and suggesting a bounce (All Exchange: -103.29 NYSE: -102.38 NASDAQ: -104.36).
• The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 14% and is on a bullish signal and at its lowest level in two years.
• The Open Insider Buy/Sell Ratio lifted to 82.7, remaining neutral.
• The most encouraging data factor for the near-term, in our view, remains the sentiment data.
• The detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.44. Its chart shows only five times in the past decade have the ETF traders been so heavily leveraged short, all of which were followed by rallies.
• As well, this week’s AAII Bear/Bull Ratio (contrarian indicator) is at a very bullish 2.75 and at a 20-year peak matched only by the 2008-2009 financial crisis as investment banks collapsed. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear is at very extreme levels.
• The forward 12-month consensus earnings estimate from Bloomberg for the SPX dipped to $235.54. Thus, the SPX forward multiple is 16.7 and at a discount, for the first time in several months, to the “rule of 20” finding ballpark fair value at 17.1.
• The SPX forward earnings yield is 5.99%.
• The 10-year Treasury yield closed lower at 2.92%. We view support as 2.5% and resistance at 3.2%.

In conclusion, the positive data still lacks confirmation from the charts in order to become actionable.

SPX: 3,894/4,152 DJI: 31,074/32,995 COMPQX: 11,167/12,259 NDX: 11,886/13,044

DJT: 14,290/14,906 MID: 2,299/2,513 RTY: 1,690/1,855 VALUA: 8,122/8,882