Indexes Recover Losses But Trends Still Negative
All the major equity indexes closed higher Monday after recovering from some fairly steep intraday losses. All closed at or near their intraday highs. However, there were no alterations regarding their near-term trends that remained negative on all but the DJT.
Yet, the fact that losses were reversed to gains was a positive. However, while we have yet to see enough evidence from the charts presented that the market correction has bottomed, the data was suggesting, in our opinion, that it was time to begin nibbling in equities, especially regarding investor sentiment fear levels.
So, while we do not suggest an “all in” approach, some selective buying may now be appropriate for those with longer term time horizons.
On the charts, all the major equity indexes posted gains yesterday with generally positive internals, after recovering from some intraday losses that were of some degree of magnitude. The fact that the losses were reversed to gains was obviously encouraging.
However, the strength did not have any impact on their near-term trends, leaving all but the DJT, that is neutral, in short term downtrends. Likewise, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remained negative.
The stochastic readings did finally generate a bullish crossover signal for the NDX. We would prefer to see others follow to support the NDX’s signal. As such, the charts remain cautionary.
However, the data, in our opinion, was suggesting some selective buying may now be appropriate.
- The McClellan 1-Day OB/OS oscillators were oversold on all but the NASDAQ that is neutral (All Exchange: -50.43 NYSE: -65.84 NASDAQ: -38.04).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 24% and is bullish as over the past 2 years said readings have produced rallies 5 out of 6 times.
- Also, the Open Insider Buy/Sell Ratio rose further to 97.7%. While staying neutral, it showed a continued increase in buying appetite on their part.
- Meanwhile, the detrended Rydex Ratio (contrarian indicator) was a bullish -1.85 with the ETF traders leveraged short.
- Importantly, this week’s AAII Bear/Bull Ratio (contrarian indicator) rose further to a very bullish 2.97 and at a 20-year peak matched only by the 2008-2009 financial crisis. Crowd fear was at very extreme levels.
- As well, the Investors Intelligence Bear/Bull Ratio (contrary indicator) was on a bullish signal at 32.9/34.2. 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 to $236.04. Thus, the SPX forward multiple was 17.6 with the “rule of 20” finding ballpark fair value at 17.0.
- The SPX forward earnings yield was 5.68%.
- The 10-year Treasury yield closed higher at 3.0 and at resistance. We view support as 2.5%.
In conclusion, while the charts have yet to send a green light, we believe the data was suggesting some toe dipping may now be appropriate, particularly for longer term investors.
SPX: 4,115/4,243 DJI: 32,828/33,492 COMPQX: 11,962/12,840 NDX: 12,597/13,493
DJT: 14,675/14,934 MID: 2,483/2,581 RTY: 1,800/1,940 VALUA: 8,828/9,000