Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Index Supports Fail As Data Says "Buy"

By Guy S. Ortmann, CMTStock MarketsMay 19, 2022 09:24AM ET
www.investing.com/analysis/index-supports-fail-as-data-says-buy-200624573
Index Supports Fail As Data Says "Buy"
By Guy S. Ortmann, CMT   |  May 19, 2022 09:24AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Insiders Continue Buying As Traders Extend Short Leverage

All the major equity indexes closed notably lower Wednesday with negative internals on the NYSE and NASDAQ as NYSE volumes rose and the NASDAQ's fell from the prior session.

All closed near their lows of the day with all but the RTY violating their support levels that we, obviously, were premature in raising yesterday morning. As such, all the charts are in near-term downtrend as of the close with no definitive action at this point that would be suggestive of a shift away from recent weakness.

With that said, the data is sending a very different message, saying that the markets are at levels that have historically been followed by market rallies that have proven quite beneficial for investors with a modicum of patience.

Our net take is that while the chart trends should not be ignored, a buying opportunity exists for those that have time horizons beyond the very near term.

On the charts, all the major equity indexes closed lower with broadly negative internals as all closed near their lows of the day. All but the RTY closed below support.

We are willing to eat some “crow” as we had raised our support levels yesterday morning. All the charts are in near term downtrends with no implications of shifting at this point. However, cumulative market breadth remained neutral on the All Exchange, NYSE, and NASDAQ.

No stochastic signals were generated.

The data, however, is sending a significantly different message.

  • While the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -9.8 NYSE: -12.82 NASDAQ: -8.05), the % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 16% and back to a bullish signal.
  • Importantly, the Open Insider Buy/Sell Ratio at 114.1 is mildly bullish and at its highest level of insider buying since the COVID lows of 2020.
  • In sharp contrast, the detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.9 as the leveraged ETF traders have historically high leveraged short exposure. Its 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.
  • So, the Rydex/Insider dynamic is bright green.
  • This week’s AAII Bear/Bull Ratio (contrarian indicator) is a very bullish 2.39 as well, staying near 20-year peak levels, also followed by rallies.
  • The Investors Intelligence Bear/Bull Ratio (contrary indicator) remains a very bullish signal and at a decade peak of fear at 39.3/30.9.
  • The crowd is essentially entirely on the bear side of the boat that usually finds sizable up moves as sentiment eventually starts to shift.
  • The forward 12-month consensus earnings estimate from Bloomberg for the SPX rose to $235.72. As such, the SPX forward multiple is 16.6 and at a discount to the “rule of 20” finding ballpark fair value at 17.1.
  • The SPX forward earnings yield is 6.0%.
  • The 10-year Treasury yield closed lower at 2.87%. We view support as 2.5% and resistance at 3.2%.

With investor sentiment at levels that have historically preceded market rallies as valuation has seen a notable moderation to discounted levels while the charts remain negative, we believe a buying opportunity now exists for investors with a modicum of patience although volatility may persist.

SPX: 3,910/4,045 DJI: 31,487/32,532 COMPQX: 11,363/11,905 NDX: 11,810/12,496

DJT: 13,622/14,658 MID: 2,337/2,439 RTY: 1,755/1,855 VALUA: 8,378/8,551

Index Supports Fail As Data Says "Buy"
 

Related Articles

Index Supports Fail As Data Says "Buy"

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Manuel Mukhuba
Manuel Mukhuba May 19, 2022 12:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email