Indexes Closed Mixed With Trends Unchanged
McClellan 1-day OB/OS Oscillators & Sentiment Still Suggesting Bounce
The major equity indexes closed mixed yesterday with mixed internals on the NYSE while the NASDAQ’s were negative. They closed at various points within their intraday ranges and lacked any technical events of import, thus leaving all but the DJT on near-term downtrends.
Meanwhile, with some of the data remaining neutral, the McClellan 1-day OB/OS Oscillators and investor sentiment readings continue to suggest an expectation of a bounce that failed to appear yesterday.
The futures this morning suggest said bounce may occur within today’s action. As to whether they may be able to make a case for a completion of the recent market correction has yet to be determined. The close of today’s session may shed some light on that issue.
On the charts, the major equity indexes closed mixed yesterday with mixed internals on the NYSE while the NASDAQ was negative on both counts. The early session rally faded into the close with the SPX, DJI, DJT and MID closing higher as the rest posted losses.
However, no technical events of import were generated. As such, all remain in near-term downtrends except the DJT that is neutral. Cumulative market breadth remains negative and below the 50 DMAs on the All Exchange, NYSE, and NASDAQ. Stochastic levels remain oversold but have yet to generate bullish crossover signals.
The data, however, still offers some glimmers of hope, in our opinion.
- The McClellan 1-Day OB/OS oscillators remain nicely oversold on each index and still suggest some bounce potential as mentioned yesterday (All Exchange: -83.63 NYSE: -90.36 NASDAQ: -76.84).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) at 32% remains neutral.
- The Open Insider Buy/Sell Ratio was unchanged 46.1% and remains neutral as well.
- The detrended Rydex Ratio (contrarian indicator) is a mildly bullish - 0.83 as the ETF traders are a bit leveraged short.
- Importantly, we had an update on this week’s AAII Bear/Bull Ratio yesterday (contrarian indicator) that rose to a very bullish 2.25. It has seen these levels 6 times in the past 20 years with all but one resolving into a rally. The only outlier was the 2008-2009 financial crisis. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) was 33.3/32.1 as bears outnumbered bulls. Historically, these levels have been buying opportunities for those with longer term horizons.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX rose slightly to $236.49. Thus, the SPX forward multiple is 17.7 with the “rule of 20” finding ballpark fair value at 17.2.
- The SPX forward earnings yield is now 5.65%.
- The 10-year Treasury yield closed higher at 2.82. We view resistance as 3.0%. Support is 2.5%.
In conclusion, our expectation of a bounce for the equity markets yesterday was unfulfilled. However, the futures are currently suggesting today may be the day. Yet, while earnings reports appear to be dominated by good news, we await further development regarding a conclusion to the recent market correction.
SPX: 4,161/4,293 DJI: 32,800/33,939 COMPQX: 12,337/13,089 NDX: 12,950/13,710
DJT: 14,693/15,708 MID: 2,485/2,597 RTY: 1,850/1,940 VALUA: 8,813/9,200