All Indexes Break Support, Turn Negative; Fear Level At Near Peak

Investors Intelligence Bear/Bull Ratio Near Decade Peak Fear Levels

All the major equity indexes closed notably lower yesterday with broadly negative internals on the NYSE and NASDAQ as trading volumes rose from the prior session. The continuation of recent weakness pushed each of the major equity index charts well below support levels, turning all into near-term negative trends.

The confined and higher trading range we have discussed of late failed to the downside. Market breadth deteriorated as well while the data still finds the 1-day McClellan OB/OS Oscillators neutral and not yet signaling an oversold bounce. The only real positive on the data is the extreme level of bearish sentiment that, on the Investors Intelligence Bear/Bull Ratio, is near peak fear levels seen four times over the past decade.

Nonetheless, yesterday’s action leaves us back in the position of needing to see violations of resistance and trend on the charts along with breadth improvement in order to become more optimistic.

On the charts, all the major equity indexes closed lower with negative internals on higher volume. All closed at or near their lows of the day and below support with notable loses.

The prior higher trading range we have discussed failed as all closed well below their respective support levels, turning all into near-term downtrends. However, all did see higher intraday lows from the 2/24 selloff.

Market breadth weakened to the point that the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ making lower low and turning negative. The DJT flashed a bearish stochastic crossover.

The data remains generally neutral except for investor sentiment. The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -42.3 NYSE: -38.93 NASDAQ: -47.69). They have yet to become oversold to a point that would suggest a bounce.

• The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 28%, turning positive.
• The Open Insider Buy/Sell Ratio is neutral and unchanged at 39.9.
• The detrended Rydex Ratio (contrarian indicator moved to neutral from bullish at -0.48.
• This week’s AAII Bear/Bull Ratio (contrarian indicator) remains bullish at 1.89 versus its prior 1.98.
• Of possibly greater significance is the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 115.4 and near peak fear levels seen 4 times over the past decade, each of which was followed by notable rallies. However, it has been as high as 140, suggesting it could go higher.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $226.18. As such, the SPX forward multiple has dropped to 18.6 with the "rule of 20" finding ballpark fair value at 18.3.
• The SPX forward earnings yield rose to 5.38%.
• The 10-year Treasury yield closed at 1.75. We view resistance at 1.84% and support at 1.67%.

In conclusion, the recent market bloodbath has yet to show signs of abating. While sentiment levels are loaded with bears and valuation has become more appealing, it’s imperative that the charts and market breadth improve before becoming more optimistic.

SPX: 4,168/4,286 DJI: 32,764/33,617 COMPQX: 12,614/13,557 NDX: 13,226/14,062

DJT: 14,711/15,220 MID: 2,487/2,615 RTY: 1,940/2,010 VALUA: 8,890/9,254