Near-Term Outlook Remains “Neutral/Positive”
The major equity indexes closed notably lower again Wednesday after giving up sizeable gains form early in the session. All closed at or near their intraday lows on heavy volume as selling pressure continued. Internals were negative on the NYSE and NASDAQ. So, all the index charts are now in near-term downtrends. However, the data is telling a very different story, in our opinion.
The McClellan 1-day OB/OS Oscillators and % of SPX stocks trading above their 50 DMAs are at levels seen at market correction lows over the past 2 years while insiders continue to increase their buying activity as the crowd rushes for the exit. So, although the markets continue to slide, we are of the opinion that, in retrospect, it will eventually be viewed as a buying opportunity. We remain “neutral/positive” in our near-term macro-outlook for equities.
On the charts, the major equity indexes closed lower yesterday with very negative internals on the NYSE and NASDAQ as volume remained heavy. All closed at or near their lows of the day after giving up nice gains earlier in the day.
- All the indexes closed below support with the COMPQX and NDX shifting their near-term trends to negative from neutral. Thus, every index is in a near-term downtrend.
- As well, market breadth continued to deteriorate with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ negative and below their 50 DMAs.
- Stochastic levels remain very oversold, but no bullish crossovers have been registered thus far.
However, in our opinion, the data is sending a notably different message.
- The McClellan 1-Day OB/OS Oscillators moved deeper into oversold territory and are at levels that have been coincident with market correction lows over the last two years except for the initial outbreak of COVID (All Exchange: -127.8 NYSE: -1313.24 NASDAQ: -125.07).
- The % of SPX issues trading above their 50 DMAs at 29% is sending the same message as the OB/OS.
- As well, the Open Insider Buy/Sell Ratio rose to 65.39 as insiders have continued to increase their buying as the crowd heads for the exits. As noted yesterday, insiders buying as the crowd panics is typically a positive sign for the markets.
- The detrended Rydex Ratio (contrarian indicator measuring the action of the leveraged ETF traders dropped to 1.07 as they pulled back on their leveraged long exposure. However, it remains cautionary.
- This week’s contrarian AAII Bear/Bull Ratio rose to 0.75, remaining neutral. The Investors Intelligence Bear/Bull Ratio (21.7/54.6) (contrary indicator) is still neutral although the number of bullish advisors declined.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $216.09 for the SPX. As such, the SPX forward multiple is 21.0 with the “rule of 20” finding fair value at approximately 18.6. The SPX forward earnings yield is 4.76%.
- The 10-year Treasury yield dipped to 1.43. We view support at 1.38% and resistance at 1.62%.
In conclusion, we believe the current state of the markets will be viewed in retrospect as a buying opportunity at some point in the not-too-distant future. We remain near-term “neutral/positive” in our macro-outlook for equities.
SPX: 4,473/4,588 DJI: 33,856/35,006 COMPQX: 15,019/15,4720 NDX: 15,643/16,134
DJT: 14,924/15,492 MID: 2,621/2,776 RTY: 2,130/2,250 VALUA: 9,204/9,703
RTY chart courtesy of Bloomberg; all other charts courtesy of Worden
