Some Charts Improve But Trading Ranges Intact
Data Largely Neutral
All the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading volumes dipped on both exchanges. All closed near their highs of the day. Some of the charts saw improvements in the form of minor violations of resistance and downtrend lines while cumulative market breadth saw some improvement as well.
On the data front, it remains mostly neutral except for investor sentiment that, as a contrarian indicator, finds bears more than bulls by almost 2:1. At this point, the indexes remain confined to their new and higher trading ranges. However, we remain of the opinion that the significant negative sentiment levels suggest any good news could trigger a sudden and positive impact on the equity markets.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ on lighter volume. All closed near their highs of the day.
Positive technical events were seen on the DJI and MID as both closed above their near-term downtrend lines and now neutral versus their previous negative trends. Only the VALUA is still in a negative trend but is very close to an improvement. The MID and DJT closed above resistance with the DJT closing back above its 1200 DMA. Several of the other charts tested resistance.
Improvement was seen regarding cumulative market breadth as the advance/decline line for the NYSE and NASDAQ turned neutral from negatives. The All Exchange remains negative. No stochastic signals of importance were generated.
The data remains generally neutral except for investor sentiment.
- The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: +34.51 NYSE: +37.16 NASDAQ: +30.64).
- The % of SPX issues trading above their 50 DMAs rose to 34%, turning neutral from bullish.
- The Open Insider Buy/Sell Ratio is neutral, dipping slightly to 46.1.
- The detrended Rydex Ratio (contrarian indicator) dipped to -0.31 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 $225.82. As such, the SPX forward multiple is now 19.4 with the "rule of 20" finding ballpark fair value at 18.1.
- The SPX forward earnings yield stands at 5.15%.
- The 10-year Treasury yield closed at 1.87% and above resistance. We view new resistance at 1.92% and support at 1.77%.
In conclusion, we remain of the opinion that the current trading ranges on the charts that would likely confine price over the near term remain in effect. However, the significant level of bearish sentiment may prove to resolve with positive impact should good news arrive.
SPX: 4,286/4,394 DJI: 33,214/34,006 COMPQX: 13,378/13,896 NDX: 13,778/14,234
DJT: 15,004/15,578 MID: 2,623/2,682 RTY: 1,990/2,090 VALUA: 9,221/9,483