Supports Hold On Notably Negative Session
All the major equity indexes closed notably lower yesterday with negative internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volumes rose from the prior session. All closed at or near their lows of the day. However, we view the fact that every index held above its near-term support level, despite the sizable declines, as positive.
In our opinion, it suggests our expectations that the index charts are most likely to continue to bounce between support and resistance levels in their new higher trading ranges as volatility shows no signs of abating.
The near-term chart trends remain a mix of neutral and negative projections. Meanwhile, the historically high level of bearish investor sentiment that currently exists may well prove beneficial should any good news hit the tape.
On the charts, all the major equity indexes closed lower yesterday with negative internals as all closed at or near their intraday lows. The losses were notable. Yet, despite the negative action, each index managed to close above its near-term support level.
Given the size of the declines, holding support suggests to us that our opinion that the indexes may most likely continue to swing between their respective new and higher support and resistance levels has some credibility.
We would note the DJI closed back below its near-term downtrend line and is now negative as are the MID, RTY, and VALUA. The rest are neutral.
Market cumulative breadth remains negative for the All Exchange NYSE and NASDAQ. No stochastic signals of import were generated.
The data remains generally neutral except for investor sentiment and the %50. The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -0.26 NYSE: -3.0 NASDAQ: -1.06).
The % of SPX issues trading above their 50 DMAs dropped to a bullish 24%. As a contrarian indicator, the six times these depressed levels were reached over the past two years, they were all followed by rallies, some of which were notable.
The Open Insider Buy/Sell Ratio is neutral, dipping to 46.5. The detrended Rydex Ratio (contrarian indicator) dipped to -0.3 and is neutral as well.
This week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) remains a potentially significant factor for the near term, in our opinion. The AAII reading was 1.98 versus its prior 1.79 and finds the crowd near peak levels of fear. As a contrarian indicator, it is potentially a strong positive should any good news hit the tape. The Investors Intelligence Bear/Bull Ratio (31.0/32.2) (contrary indicator) remains bullish as well.
Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX rising to $225.678. As such, the SPX forward multiple is now 19.1 with the "rule of 20" finding ballpark fair value at 18.23 The SPX forward earnings yield stands at 5.24%.
The 10-year Treasury yield closed at 1.71% and below support. We view new resistance at 1.84% and support at 1.69%.
In conclusion, yesterday’s negative action did not impact the charts and data to the degree that would prompt a shift from our expectations that the indexes are likely to be confined in their trading ranges for the near term.
SPX: 4,286/4,394 DJI: 33,214/34,000 COMPQX: 13,378/13,876 NDX: 13,778/14,234
DJT: 14,636/15,303 MID: 2,603/2,667 RTY: 1,990/2,090 VALUA: 9,221/9,483