Index Rallies Show A Few Improvements
Data Remains Mostly Neutral Except For High Bearish Sentiment
The major equity indexes closed notably higher yesterday with strong market internals but lighter trading volumes for the NYSE and NASDAQ. All closed near their highs of the day with one index violating resistance as two others closed above their near-term downtrend lines. Nonetheless, the majority of the charts remain in near-term downtrends as does cumulative market breadth. Yet there was enough strength to cause us to raise several near-term support levels on the index charts.
The data remains mostly neutral except for the extremely high levels of bearish sentiment. Yesterday’s action, in our opinion, was an example of such extreme sentiment resulting in powerful moves on only slightly positive news. So, while we are encouraged by yesterday’s results, we believe further index chart and cumulative breadth improvements are needed to imply we have moved out of the current highly volatile trading ranges.
On the charts, all the major equity indexes close nicely higher yesterday with positive internals on both the NYSE and NASDAQ as buying interest stayed strong throughout the session. Positive technical chart events were seen on the DJT and RTY that closed above their near-term downtrend lines and are now neutral. Also, the VALUA closed above resistance. As a broad and unweighted index, the VALUA move can be view as encouragement for the general market, in our opinion.
As well, several resistance levels were tested but failed to be violated. All remain in near term downtrends except the DJT and RTY that are now neutral. Cumulative market breadth remains negative on the All Exchange, NYSE and NASDAQ. No stochastic signals were generated.
The data continues to send generally neutral signals except for investor sentiment that remains near historic levels of bearish expectations.
- The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: +23.49 NYSE: +20.81 NASDAQ: +24.6).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 26% and remains positive as it is at levels coincident with market lows over the past two years.
- The Open Insider Buy/Sell Ratio (page 9) is neutral, lifting to 39.6.
- The detrended Rydex Ratio (contrarian indicator) remains neutral at -0.51.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remains bullish at 1.89 versus its prior 1.98.
- We reiterate our opinion of possibly greater significance coming from the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 115.4 and near peak fear levels seen 4 times over the past decade, each of which was followed by notable rallies. We reiterate it has been as high as 140, suggesting it could go higher.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $226.64. As such, the SPX forward multiple is 18.9 with the "rule of 20" finding ballpark fair value around 18.1.
- The SPX forward earnings yield dipped to 5.3%.
- The 10-year Treasury yield closed at 1.95 and above resistance. We view new resistance as 2.0% and support at 1.8%.
In conclusion, yesterday’s positive action still needs further improvement to imply a sustainable rally.
SPX: 4,168/4,286 DJI: 32,620/33.291 COMPQX: 12,790/13,557 NDX: 13,226/13,766
DJT: 14,711/15,220 MID: 2,527/2,598 RTY: 1,940/2,010 VALUA: 9,004/9,256