The major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. All closed near their highs of the day. Yet, there were no violations of resistance, or their near-term neutral trends, as was also the case with the market’s cumulative breadth.
And while the NASDAQ 1-Day McClellan OB/OS Oscillator has become overbought, the historically high level of the crowd’s bearish sentiment, as noted yesterday, suggests the tests of high-volume resistance levels on the indexes remains likely. Should that transpire, we would then expect a period of sideways movement before said resistance levels may be violated.
On the charts, all the indexes closed higher yesterday with positive NYSE and NASDAQ internals as trading volumes rose on both. All closed near their highs of the day. Yet, the strength was insufficient in terms of violating resistance levels or near-term trends. As such, all the indexes remain in near-term neutral trends. Strong market breadth left the cumulative breadth for the All Exchange, NYSE and NASDAQ neutral and below their 50 DMAs. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS Oscillators for the NADAQ entering overbought territory as the others remain neutral (All Exchange: +36.14 NYSE: +6.64 NASDAQ: +57.11).
- The % of SPX issues trading above their 50 DMAs rose slightly to 45%, also staying neutral.
- The Open Insider Buy/Sell Ratio slipped further to 41.9 and neutral as insiders continued to pull back from their aggressive buying near recent market lows,
- The detrended Rydex Ratio (contrarian indicator) rose to +0.14 but also remains neutral and nowhere near their highly leveraged long levels prior to the correction.
- We believe this week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) that saw another rise in bearish sentiment, as noted yesterday, to a very bullish 2.03 and double the number of bears than bulls as a positive as it is near peak levels of fear registered over the past 20 years (see chart below).
- The Investors Intelligence Bear/Bull Ratio (25.0/35.7) (contrary indicator) remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX at $239.45 after rising sizably from $224.55 yesterday morning. The fact that it was not revised back down to the $224.00 range adds to its credibility, in our opinion. As such the SPX forward multiple is now 18.9 with the “rule of 20” finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.3%.
- The 10-year Treasury yield closed above resistance at 1.95%. As such, we now see new resistance around 2.05% with support at 1.8%
In conclusion, recent market strength has failed to trigger any notable warning signals on the data while the crowd is about as fearful as it has been in the past 20 years. As such, we suspect tests of high-volume resistance on the index charts remains likely.
SPX: 4,435/4,587 DJI: 34,743/35,658 COMPQX: 13,918/14,524 NDX: 14,469/15,208
DJT: 15,080/15,511 MID: 2,603/2,699 RTY: 1,990/2,140 VALUA: 9,294/9,523