Indexes Closed Mixed And Remain Neutral
AAII Bear/Bull Ratio Shows Crowd Remains Terrified
The major equity indexes closed mixed Monday with positive internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volumes rose from the prior session. Most closed near the midpoints of their intraday ranges. No technical events of import were generated on the charts, leaving all in near-term neutral patterns.
The data remains generally neutral as well except for the AAII Bear/Bull Ratio (contrarian indicator) that finds the crowd near peak levels of bearish sentiment exhibited over the past 20 years.
Forward 12-month consensus earnings estimates via Bloomberg rose notably but we await tomorrow’s data to confirm. As such, while the AAII numbers are quite encouraging, we remain of the opinion that the indexes are now likely in a period of sideways action that may take some time before overhanging volume can be overcome.
On the charts, the indexes closed mixed yesterday with positive internals as the DJI, RTY, and VALUA rising as the rest posted losses. However, no technical events of import occurred, leaving all in near-term neutral patterns that may require some time before being resolved due to sizable overhanging volume.
Market cumulative breadth was unchanged with the A/Ds for the All Exchange, NYSE and NASDAQ staying neutral. The DJI did flash a bearish stochastic crossover signal, however.
The data finds the McClellan 1-Day OB/OS Oscillators remaining neutral (All Exchange: +13.42 NYSE: -16.24 NASDAQ: +33.92).
- The % of SPX issues trading above their 50 DMAs rose slightly to 42%, also staying neutral.
- The Open Insider Buy/Sell Ratio slipped to 44.7 as insiders continued to pull back from their aggressive buying near recent market lows, staying neutral.
- The detrended Rydex Ratio (contrarian indicator) is -0.38, also neutral.
- This week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) saw another rise in bearish sentiment to a very bullish 2.03, double the number of bears than bulls. We view this as a strong positive as it is near peak levels of fear registered over the past 20 years.
- 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 rising notably to $239.43 from $224.55 for the SPX. We have seen something similar once before that was readjusted the following day. Tomorrow should tell the tale. As such, if the rise is accurate, the SPX forward multiple would be 18.8 with the “rule of 20” finding ballpark fair value at 18.1.
- The SPX forward earnings yield would rise to 5.34%.
- The 10-year Treasury yield closed at 1.92 and near our projected resistance at 1.94%. We view support for the 10-year at 1.68%.
In conclusion, while contrarian sentiment is quite encouraging, we remain of the opinion that, while a near-term market low may have been achieved, the indexes may require a period of sideways action before being able to overcome notable resistance levels.
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: 1,940/2,140 VALUA: 9,294/9,523