Several Support Breaks, But Trends Stay Neutral
Data Remains Neutral
All the major equity indexes closed lower Friday with negative internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volumes rose from the prior session. All closed at or near their lows of the day as all pulled back from the recent tests of their respective resistance levels, as we had suspected.
However, while several of the indexes closed below their near-term support levels at the end of a nasty session, no near-term trends were violated, leaving all in neutral projections.
Meanwhile, the data is entirely neutral, including the 1-Day McClellan OB/OS Oscillators, that make it difficult to assume the pullback from the resistance tests has been completed. As this is being written, the futures are slightly lower. In our opinion, today’s close will be instructive as to whether the pullback has further to go.
On the charts, all the indexes closed lower with negative internals on rather heavy volume Friday. The notable drop on the day left all near their intraday lows at the close. Near-term support levels were violated on the SPX, DJI, COMPQX, NDX, and DJT while the MID, RTY, and VALUA all held support. However, the session’s downdraft did not result in a shift from their current near-term neutral trends.
Cumulative market breadth shifted to neutral from positive for the All Exchange, NYSE and NASDAQ. Also, bearish stochastic crossover signals were generated on the SPX, DJI, COMPQX, and NDX.
The data finds the McClellan 1-Day OB/OS staying neutral despite the degree of Friday’s declines (All Exchange: +3.19 NYSE: -23.83 NASDAQ: +20.7).
- The % of SPX issues trading above their 50 DMAs dipped to 40%, staying neutral.
- The Open Insider Buy/Sell Ratio also dipped to 41.4 and neutral.
- The detrended Rydex Ratio (contrarian indicator) was unchanged -0.14 and remains neutral as well.
- Last week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) saw another rise in bearish sentiment to a very bullish 2.03 and double the number of bears than bulls as a positive as it is near 20-year peak levels of fear. The Investors Intelligence Bear/Bull Ratio (25.0/35.7) (contrary indicator) remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $224.81. As such, the SPX forward multiple is now 19.7 with the “rule of 20” finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.09%.
- The 10-year Treasury yield closed at 1.96%. We see resistance around 2.05% with support at 1.8%
In conclusion, Friday’s action did result in a pullback from the tests of their resistance levels as we had suspected. However, the speed was faster than we surmised. The net result is all the charts and data are now neutral and not highly instructive as to the probability of today’s direction. While we hate to be ambiguous, there is not enough evidence to come to a projection with a high degree of confidence. Yet, should supports hold, that could prove encouraging.
SPX: 4,357/4,500 DJI: 34,350/35,267 COMPQX: 13,622/14,203 NDX: 14,151/14,778
DJT: 14,078/15,492 MID: 2,628/2,740 RTY: 1,990/2,140 VALUA: 9,385/9,657