The major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as trading volumes dipped on both from the prior session. All closed at or near their highs of the day as several of the charts saw their near-term trends turn neutral from negative as their near-term downtrend lines were violated.
Meanwhile, while cumulative market breadth remains negative, the data finds the McClellan 1-day OB/OS oscillators remain oversold while insiders continued to buy their stock with the most enthusiasm since March of 2020. As such, we believe, given the chart reversals and current state of the data, tests of near-term resistance are still likely. The question is, “Given the size of the overhead supply at those levels, will multiple attempts to violate said resistance be required before being violated?”
On the charts, all the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes dipped from Thursday’s levels. All closed at or near their highs of the day. The SPX, DJI, COMPQX, and NDX all closed above their near-term downtrend lines, turning said trends to neutral from negative. The rest remain in near-term downtrends but appear to be close to violating their downtrends as well.
While Friday’s breadth was positive, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative. The SPX, DJI, COMPQX and NDX remain on bullish stochastic crossover signals with the rest oversold.
The data, in our opinion, continues to suggest more upside is available.
- The McClellan 1-Day OB/OS Oscillators remain in oversold territory post Friday’s strength. (All Exchange: -75.57 NYSE: -85.52 NASDAQ: -69.27).
- The % of SPX issues trading above their 50 DMAs rose to 36% but still near levels coincident with correction lows.
- The Open Insider Buy/Sell Ratio jumped further to 113.7 from 109 and finds insiders doing their most aggressive buying since the March/April lows of 2020.
- In contrast, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders slipped further to a mildly bullish 0.07 as they head for the highs while insiders swallow up stock.
- Last week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 1.53 while the Investors Intelligence Bear/Bull Ratio (25.0/39.8) (contrary indicator) saw the number of bulls dropped notably.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $223.23 for the SPX. As such, the SPX forward multiple is 19.9 with the “rule of 20” finding ballpark fair value at 18.2.
- The SPX forward earnings yield stayed above 5% at 5.04%.
- The 10-year Treasury yield dipped to 1.78. We view support for the 10-year at 1.60% with resistance at 1.93%.
In conclusion, while overhead resistance levels may prove formidable, we believe tests of said resistance remain likely, given the improvement in the charts as the data lights remain green.
SPX: 4,290/4,437 DJI: 34,013/35,072 COMPQX: 13,281/13,923 NDX: 13,990/14,503
DJT: 14,659/15,608 MID: 2,516/2,647 RTY: 1,669/2,140 VALUA: 8,927/9,326