All Indexes Violate Resistance
Data Starting To Send More Mixed Signals
All the major equity indexes closed higher Tuesday with very positive internals on the NYSE and NASDAQ as trading volumes rose on both from the prior session. All closed at or near their intraday highs, finding every index above its respective resistance level at the session’s end. As well, market breadth continued to improve. Yet, while the rally continued, the data was staring to send some mixed signals.
The pause retracement of recent gains we have been expecting has not appeared as market strength has continued over the past few sessions. However, the data finds the McClellan OB/OS Oscillators more overbought as some of the other encouraging data points have moderated. The data that was screaming that a buying opportunity was present at the market lows has now turned a bit more cautionary, suggesting a pause/consolidation of resent gains remains a probability.
On the charts, all the major equity indexes closed higher yesterday with positive internals on heavier trading volumes. All closed near their highs of the day as every index managed to close above its near-term resistance level. As such, the strength left all the indexes in near-term uptrends and above their 50 DMAs.
Also, market breadth was strong enough to push the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ back above their 50 DMAs and in uptrends. Stochastic levels were overbought and in the 90s across the board but had yet to generate bearish crossover signals.
The data signals were getting a bit more cautionary, however.
- The McClellan 1-Day OB/OS oscillators were overbought with the NYSE very overbought (All Exchange: +96.26 NYSE: +100.56 NASDAQ: +96.36).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 72% and remained neutral but approaching the %75-80% cautionary levels.
- The Open Insider Buy/Sell Ratio lifted to 50.5, also staying neutral.
- The detrended Rydex Ratio (contrarian indicator) dropped to -0.72 and was neutral versus its prior bullish implications.
- This week’s AAII Bear/Bull Ratio (contrarian indicator), while dipping, remained bullish at 1.65 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) was at 35.31/36.3, near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally such as the one currently in play. The crowd remained fearful despite recent strength.
- Valuation found the forward 12-month consensus earnings estimate from Bloomberg for the SPX at $227.98. As such, the SPX forward multiple rose to 20.3 with the "rule of 20" finding ballpark fair value dipping to 17.6 as the valuation gap widened further.
- The SPX forward earnings yield dropped to 4.92%.
- The 10-year Treasury yield closed lower at 2.4. We view resistance at 2.64% while support remained at 2.0%.
In conclusion, the markets had yet to show a slowing/pause of the recent rally despite the cautionary signals coming from the data. As bearish investor sentiment remained a positive, the data still implied some consolidation of the recent sizable gains from their mid-March lows, in our opinion.
SPX: 4,516/4,659 DJI: 34,697/35,518 COMPQX: 14,202/14,938 NDX: 14,642/15,358
DJT: 16,239/16,852 MID: 2,685/2,792 RTY: 2,080/2,145 VALUA: 9,551/9,922