All the major equity indexes closed nicely higher Friday with positive internals on the NYSE and NASDAQ as trading volumes declined from the prior session.
All closed at or near their intraday highs except for the DJT. The rally we had been suggesting may be forthcoming as noted by the data dashboard did, in fact, occur.
And while some of the indexes saw their trends turn neutral from negative, with the rest remaining in near-term downtrends, the data continues to imply the potential for further strength, possibly resulting in more tests and violations of resistance and near-term downtrends.
On the charts, all the major indexes saw notable gains at the close of Friday’s trade as all but the DJT closed near their highs of the day. Internals were broadly positive on the NYSE and NASDAQ.
Technical improvements were registered on the SPX, DJI, and DJT as they closed above their near-term downtrend lines and are now neutral versus their prior negative trends. The rest are still in downtrends.
Markey breadth saw some improvement as well as the cumulative advance/decline lines for the All Exchange and NYSE turned neutral from negative while the NASDAQ remains negative. The stochastic levels are oversold on all the charts and near bullish crossover signals. Said signals have not been generated.
Despite the surge of the last session, the data that had been suggesting the rally continues to send generally very bullish signals with investor sentiment (contrarian indicators) remaining at historically high levels of bearish expectations.
- The McClellan 1-Day OB/OS oscillators moved to neutral from oversold but are not yet in overbought territory (All Exchange: -19.78 NYSE: -18.83 NASDAQ: -19.55).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 21% and remains on a bullish signal and near its lowest level in two years.
- The Open Insider Buy/Sell Ratio rose notably to 103.7, remaining neutral but showing more buying activity by insiders than any other time since the February market lows.
- 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, sliding to -2.53 as the leveraged ETF traders expanded their leveraged short exposure. 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.
- Last week’s AAII Bear/Bull Ratio (contrarian indicator) was 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) was on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear remains at very extreme levels.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX dipped to $235.55. Thus, the SPX forward multiple is 17.1 and in line with the “rule of 20” finding ballpark fair value at 17.1.
- The SPX forward earnings yield is 5.85%.
- The 10-year Treasury yield closed higher at 2.93%. We view support as 2.5% and resistance at 3.2%.
In conclusion, while there may be some backing and filling, the data suggests more strength to come.
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