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Charts Testing Monday’s Hammer Levels

By Guy S. Ortmann, CMTMarket OverviewJan 14, 2022 09:13AM ET
Charts Testing Monday’s Hammer Levels
By Guy S. Ortmann, CMT   |  Jan 14, 2022 09:13AM ET
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Data Remains Neutral

The major equity indexes closed mostly lower Thursday except for the Dow Jones Industrial Average, which posted a slight gain. Market internals were negative on the NYSE and NASDAQ as trading volumes increased from the previous session as all the indexes closed near their intraday lows. While four of the indexes closed below their near-term support levels, none of the current near-term trends were altered from their current neutral patterns. Meanwhile, the data remains generally neutral as insiders did a bit of buying yesterday while the typically wrong leveraged ETF traders remain skeptical of the notable rally earlier in the week. As such, we remain near-term “positive” in our macro-equity outlook as the charts are suggesting we may be seeing a test of Monday’s “hammer” levels that, when they occurred, we noted they had a possibility of being tested. Said tests appear to be occurring presently.

  • All closed near their intraday lows as the S&P 500, NASDAQ Composite, Nasdaq 100, and Russell 2000 closed below their bear-term support levels.
  • However, none of the neutral near-term trends that currently exist on each of the indexes were violated.
  • In our opinion, they may be testing the “hammer” levels generated in Monday’s action. We noted that such levels had the possibility of being tested at that time. That now appears to be the case.
  • Cumulative market breadth was unchanged and neutral on the All Exchange, positive on the NYSE Composite and negative on the NASDAQ.
  • No stochastic signals were generated.

The data finds the McClellan 1-Day OB/OS Oscillators still neutral (All Exchange: -7.59 NYSE: +18.22 NASDAQ: -26.87).

  • The % of SPX issues trading above their 50 DMAs slipped to 62% and remains neutral as the Open Insider Buy/Sell Ratio (page 9) rose to 41.4 from 35.6, staying neutral as well.
  • The detrended Rydex Ratio (contrarian indicator page 8), however, measuring the action of the leveraged ETF traders, was unchanged at 0.77. While staying neutral, the fact that these historically wrong traders continue to disbelieve the market strength earlier this week we find to be encouraging. We get nervous when they become notably leveraged long.
  • This week’s contrarian AAII Bear/Bull Ratio rose to 0.95 turning neutral from bullish. The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator page 9) remains neutral, although the number of bullish advisors declined.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $221.49 for the SPX. As such, the SPX forward multiple is 21.0 with the rule of 20” finding fair ballpark value at 18.3.
  • The SPX forward earnings yield is 4.75%.
  • The 10-year Treasury yield slipped to 1.71%. We view support for the 10-Year at 1.60% with resistance at 1.85%.

In conclusion, we believe yesterday’s weakness may likely be a test of Monday’s “hammer” washout of sellers. Such tests are far from unusual. So, given the state of the charts and data, we remain near-term “positive” in our macro-outlook for equities as we remain of the opinion that Monday’s action likely placed a near-term bottom for the indexes.

  • SPX: 4,650/4,723
  • DJI: 35,922/36,300
  • COMPQX: 14,767/15,177
  • NDX: 15,364/15,683
  • DJT: 15,836/16,363
  • MID: 2,777/2,866
  • RTY: 2,150/2,190
  • VALUA: 9,744/9,822
Charts Testing Monday’s Hammer Levels

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