All the major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ as trading volumes rose from the prior session. All closed near their highs of the day with several charts violating resistance as others closed above their near-term downtrend lines. As such, all but one are in near-term neutral trends versus their prior negative slopes.
Cumulative market breadth improved as well, turning neutral from negative as more bullish stochastic crossovers were registered on the index charts. The data finds the 1-day McClellan OB/OS Oscillators only at neutral, not overbought, post a 2-day 887-point rally on the COMPQX.
In our opinion, the psychology data suggests more upside as the crowd has become quite bearish while insiders continue buying as noted below. Thus, we still believe tests of important resistance levels on the index charts are likely.
On the charts, all the major equity indexes closed higher yesterday with broadly positive internals on the NYSE and NASDAQ on heavy trading. All closed at or near their highs of the day with the SPX, DJI, COMPQX, and NDX closing above near-term resistance. As well, the MID, RTY, and VALUA closed above their near-term downtrend lines and are now neutral as are the rest except for the DJT staying negative.
Cumulative market breadth finally improved as well with the advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral from negative. Bullish stochastic crossovers were registered on the DJT, MID and VALUA.
The data, in our opinion, continues to suggest more upside is available.
- While the McClellan 1-Day OB/OS Oscillators are now neutral after a 190 point 2-day rally on the SPX (All Exchange: -10.13 NYSE: -22.12 NASDAQ: -2.18), other data is supportive of strength.
- The % of SPX issues trading above their 50 DMAs rose to 39% but still near levels coincident with correction lows.
- The Open Insider Buy/Sell Ratio slipped to 103.3 but finds insiders doing their most aggressive buying since the March/April lows of 2020 over the past few sessions.
- In contrast, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders slipped further to a mildly bullish -0.07 as they are now very slightly leveraged short.
- Importantly, this week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 2.0, double the number of bears than bulls, while the Investors Intelligence Bear/Bull Ratio (26.7/34.9) (contrary indicator) saw the number of bears rise as bulls fell.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $223.27 for the SPX. As such, the SPX forward multiple is 20.2 with the “rule of 20” finding ballpark fair value at 18.2.
- The SPX forward earnings yield is 4.94%.
- The 10-year Treasury yield was unchanged at 1.78. We view support for the 10-year at 1.60% with resistance at 1.93%.
In conclusion, we believe the charts and data imply more upside with tests of important resistance levels.
SPX: 4,381/4,587 DJI: 34,400/35,266 COMPQX: 13,628/14,524 NDX: 14,3150/15,208
DJT: 14,659/15,608 MID: 2,516/2,647 RTY: 1,669/2,140 VALUA: 9,137/9,523