All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes dipped for both from the prior session. All closed near their highs of the day as the recent rally continued.
A combination of violations of resistance and downtrend lines helped improve some of the index charts as all are now in near-term “neutral” trends. The data has moderated to some degree with all on neutral signals post the recent significant market gains.
However, we still find encouragement coming from the investor sentiment data that continues to show the crowd quite nervous and nonbelievers of the recent rally. Thus, we believe some further market strength may be forthcoming although possibly not at the rapid pace seen over the past several sessions.
On the charts, all the major equity indexes closed higher yesterday with broadly positive internals on the NYSE and NASDAQ as trading volumes dipped. All closed near their highs of the day. Positive chart events were noted on the DJI and MID as both closed above their near-term resistance levels. As well, the DJT closed above its near-term downtrend line and joins the rest of the charts in near-term “neutral” trends.
Yesterday’s positive market breadth left the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ neutral and below their 50 DMNAs. All stochastic readings are neutral.
The data moderated to some degree. The McClellan 1-Day OB/OS Oscillators moved further into neutral territory from their prior oversold condition (All Exchange: +33.4 NYSE: +19.77 NASDAQ: +42.38).
- The % of SPX issues trading above their 50 DMAs rose to 42% and neutral as well.
- The Open Insider Buy/Sell Ratio slipped to 91.1 as insiders pulled back from their recent aggressive buying, turning neutral
- However, some encouragement comes from the detrended Rydex Ratio (contrarian indicator), in our opinion, measuring the action of the leveraged ETF traders as it dipped further to a mildly bullish -0.10. They remain skeptical of the market’s recent notable strength.
- As well, this week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 2.0, double the number of bears than bulls, while the Investors Intelligence Bear/Bull Ratio (26.7/34.9) (contrary indicator) saw the number of bears rise as bulls fell.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $224.04 for the SPX. As such, the SPX forward multiple is 20.3 with the “rule of 20” finding ballpark fair value at 18.2.
- The SPX forward earnings yield is 4.93%.
- The 10-year Treasury yield lifted to 1.8. We view support for the 10-year at 1.60% with resistance at 1.93%.
In conclusion, while progress may moderate from its recent notable pace, the neutral data still shows the crowd unwilling to embrace the recent rally. As a contrarian indicator, it suggests the rally has not yet seen its peak, by our work.
SPX: 4,381/4,587 DJI: 34,743/35,658 COMPQX: 13,918/14,524 NDX: 14,469/15,208
DJT: 15,272/15,608 MID: 2,603/2,699 RTY: 1,940/2,140 VALUA: 9,294/9,523