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Down Day Leaves Charts In Uptrends

Published 03/24/2022, 09:10 AM
Updated 07/09/2023, 06:31 AM

Period Of Consolidation Still Expected

All the major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the previous session.

All closed at or near their lows of the day but left all the charts in uptrends with the only technical event of note was the DJI closing below its 50 DMA. The data moderated somewhat but left the McClellan 1-Day OB/OS Oscillators in overbought territory as did the detrended Rydex Ratio.

Thus, we continue to expect a continuation of some consolidation from the market’s recent sizable rally given the bulk of the data signals as well as several charts approaching high volume resistance levels that typically require several attacks before being overcome.

On the charts, all the major equity index charts closed lower yesterday with negative internals on lighter volume. All closed near their lows of the day but no support levels or trends were violated, leaving all in near-term uptrends. The only event of note was the DJI closing below its 50 DMA as the rest remained above.

We would note the DJI, COMPQX, NDX, DJT, and MID now have resistance levels consisting of rather high volume. Such high-volume resistance levels typically require several tests before being resolved to the upside. As such, they add to our expectations of some consolidation going forward.

The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive while stochastic levels remain overbought but without generating bearish crossover signals thus far.

The data finds the McClellan 1-Day OB/OS oscillators overbought but less so (All Exchange:  +66.17 NYSE: +56.27 NASDAQ: +73.69).

  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 46% but remains neutral.
  • The Open Insider Buy/Sell Ratio slipped to 37.2, also staying neutral.
  • The detrended Rydex Ratio (contrarian indicator) saw a significant lessening of their leveraged short exposure as they remain leveraged short at -0.90. However, as a contrarian indicator, it remains on a bullish signal. 
  • This week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.78 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 36.5/30.6, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $227.74. As such, the SPX forward multiple is 19.6 with the "rule of 20" finding ballpark fair value around 17.7.
  • The SPX forward earnings yield stands at 5.11%.
  • The 10-year Treasury yield closed at 2.32. We view resistance as 2.4%. Support remains at 1.87%.

In conclusion, given the size of recent gains with nearly vertical near-term uptrends, as they approach high volume resistance combined with the data, continue to suggest to us the markets are likely to go through a period of consolidation of said gains before further progress may be made.

SPX: 4,397/4,530  DJI: 34,081/34,830
COMPQX: 13,700/14,147 NDX: 14,126/14,749 
DJT: 15,745/16,585  MID: 2,642/2,717
RTY: 2,015/2,090 VALUA: 9,426/9,647

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