The major equity indexes closed mixed Friday with mixed internals on the NYSE and NASDAQ as both saw negative breadth but positive up/down volume on heavier trade.
All but one index closed near their intraday highs after successfully testing their respective “hammer” levels from Monday, Jan. 10. We have noted last week a test of said levels was a possibility. The fact that the tests were successful is an encouragement, in our opinion as it implies the action on the 10th was, very likely, a washout of the sellers.
Meanwhile, the data remains largely neutral. The futures this morning are notably lower but, in our view, are testing Friday’s intraday lows that, if successful as they were on Friday, would give further confidence in the market’s near-term lows have been established, setting up for a period of some strength.
On the charts, the major equity indexes closed mixed Friday on higher volume as breadth was negative but up/down volume was positive on the NYSE and NASDAQ.
- Of greatest importance, in our opinion, is that all but the DJT closed near their intraday highs, recovering from notable losses earlier in the session. In fact, it appears, from a technical perspective, that the hammer levels of last Monday, the Jan. 10, were tested successfully as noted most obviously on the DJI and MID.
- At the close, the SPX, COMPQX, NDX, and RTY posted gains as the rest saw minor losses.
- As a result, all the indices remain in near-term neutral trends.
- However, cumulative market breadth did deteriorate as the All Exchange turned negative from neutral and the NYSE turned neutral from positive. The NASDAQ A/D remains negative.
- No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS Oscillators remain neutral (All Exchange: -14.1 NYSE: +0.65 NASDAQ: -24.98).
- The % of SPX issues trading above their 50 DMAs slipped to 57% and remains neutral as the Open Insider Buy/Sell Ratio rose to 45.8 from 41.1, staying neutral as well.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders also rose to 0.95 and remains neutral.
- This week’s contrarian AAII Bear/Bull Ratio is 0.98, also staying neutral.
- The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator) remains neutral as the number of bulls and bears dropped from the prior week.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising notably to &$225.06 from $221.49 for the SPX. As such, the SPX forward multiple is 21.0 with the rule of "20" finding ballpark fair value at 18.3.
- The SPX forward earnings yield is 4.83%.
- The 10-year Treasury yield rose to 1.77%. We view support for the 10-year at 1.60% with resistance at 1.85%.
In conclusion, we believe Friday’s volatility that saw significant recoveries for the indexes from their intraday lows, successfully testing their respective “hammer” levels as discussed above, adds more credibility to our suspicion that the action of the 10th was more likely a washout of sellers.
The weak futures this morning suggest another test is at hand today. Should they also survive their tests, it would add more likelihood that sellers have dissipated to the point that some progress may be in the offering over the near term.
SPX: 4,650/4,723 DJI: 35,922/36,300 COMPQX: 14,767/15,177 NDX: 15,364/15,682
DJT: 15,836/16,363 MID: 2,777/2,866 RTY: 2,150/2,190 VALUA: 9,744/9,822