All Indexes Break Support Again
Data Sending Several Bullish Signals but Needs Chart Confirmation
All the major equity indexes closed lower Monday with very negative internals on the NYSE and NASDAQ as trading volumes swelled from the prior session.
All closed notably lower and near their lows of the session as each broke below its respective support level. As such, all the near-term trends were bearish as of the close.
Yet, while the charts looked awful, several of the data levels were sending very strong positive signals suggestive of upside relief including the OB/OS oscillators and historically significant investor sentiment fear levels.
However, while the data was flashing some bright green lights, the charts have yet to reverse their negative trends. Closes above resistance and downtrends are necessary, in our opinion, to act on the data signals. The strong futures this morning need to hold through the day with some degree of follow through.
On the charts, all the major equity indexes closed lower yesterday with breath and up/down volumes highly skewed to the negative as all closed below support. All the downtrend lines remained intact with the DJT now joining the rest of the charts.
Market breadth continued to sink as well with the cumulative advance/decline lines remaining negative and below their 50 DMAs for the All Exchange, NYSE, and NASDAQ as they made lower lows. Stochastic levels were oversold by lack bullish crossover signals.
The data, however, was flashing some very bullish signals with investor sentiment (contrarian indicators) at historically high levels of bearish expectations.
- The McClellan 1-Day OB/OS oscillators were nicely oversold and suggesting a bounce (All Exchange: - 93.71 NYSE: -98.71 NASDAQ: -90.04).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 20% and now on a bullish signal.
- The Open Insider Buy/Sell Ratio dipped to 80.2%, remaining neutral. However, they have been relatively active buyers over the past several sessions.
- 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 at -2.75. As it’s 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.
- As well, this week’s AAII Bear/Bull Ratio (contrarian indicator) is at 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) is on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear is at very extreme levels.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX lifted to $235.63. Thus, the SPX forward multiple is 16.9 and now in line with the “rule of 20” finding ballpark fair value at 16.9.
- The SPX forward earnings yield is 5.9%.
- The 10-year Treasury yield closed lower at 3.08%. We view support as 2.5% and new resistance at 3.2%.
In conclusion, the data says it’s time to get back on the horse, especially for long term investors. However, the lack of validation from the charts has yet to say it’s safe to go back in the water for the shorter term. Breadth and chart improvement are essential to give the data more credibility regarding their implications.
SPX: 3,894/4,152 DJI: 31,074/32,995 COMPQX: 11,442/12,502 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