AAII Contrarian Sentiment Indicator Turns Bullish
All the major equity indexes closed lower Monday with negative internals on the NYSE and NASDAQ as trading volumes rose from Friday’s session. Some of the charts violated support and are now in near-term bearish trends. However, we would note that all made higher lows versus those made in the first week of December. While it does not suggest a bottom is eminent, the higher lows are somewhat encouraging from a technical perspective.
Yet, the chart trends are now a mix of positive, negative and neutral implications. The data finds one of the OB/OS Oscillators back in oversold while contrarian crowd sentiment finds them primarily on the bearish side of the fence. As a contrarian indicator, it is viewed as a positive for the markets. So, although no confirmations of relief of recent pressure are apparent, the combination of higher lows as the crowd becomes more frightened suggest we keep our near-term “neutral/positive” macro-outlook for equities in place.
On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as trading volumes rose on both. All closed at or near their intraday lows.
- The COMPQX, MID, and RTY closed below support and are now near-term negative while the SPX and DJI are positive.
- The NDX, DJT, and All Exchange remain neutral.
- Breadth suffered on the NASDAQ as its cumulative advance/decline line turned negative with the All Exchange and NYSE staying neutral.
- No stochastic signals were generated.
Looking at the data, the McClellan 1-Day OB/OS Oscillators find the NASDAQ now oversold with the All Exchange and NYSE neutral (All Exchange: -48.8 NYSE: -41.03 NASDAQ: -54.1).
- The % of SPX issues trading above their 50 DMAs dipped to 55% but remains neutral.
- The Open Insider Buy/Sell Ratio also down ticked to 47.3 as insiders decreased their buying activity yet also remains in neutral territory.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders moved lower to a neutral 0.8.
- This week’s contrarian AAII Bear/Bull Ratio rose to 1.2 as the crowd became more nervous and now has bullish implications. Bears now outnumber bulls.
- The Investors Intelligence Bear/Bull Ratio (25.3/39.8) (contrary indicator) is still neutral, but the number of bullish advisers dropped a notable 10 points.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $215.78 for the SPX. As such, the SPX forward multiple is 21.6 with the “rule of 20” still finding fair value at approximately 18.6.
- The SPX forward earnings yield is 4.62%.
- The 10-year Treasury yield dipped to 1.42%. We view support at 1.35% and resistance at 1.53%.
In conclusion, selling pressure continued in the markets yesterday with no important evidence present that the correction is complete. Yet, while breadth and the charts have weakened, the indexes made higher lows versus the lows of the first week of the month while investor sentiment finds the crowd starting to run for cover. Thus, we remain near-term “neutral/positive” in our macro-outlook for equities.
SPX: 4,633/NA DJI: 35,319/36,159 COMPQX: 15,376/15,631 NDX: 15,888/16,417
DJT: 15,480/16,540 MID: 2,740/2,812 RTY: 2,155/2,220 VALUA: 9,542/9,930