COMPQX And NDX Close Above Resistance
New Sentiment Data Finds Fear Levels Remain High
All the major equity indexes closed higher yesterday although market breadth was negative on both the NYSE and NASDAQ. All closed near their highs of the day with two of the index charts closing above their near-term resistance levels. As such, all the near-term chart trends remain positive as does cumulative market breadth.
However, the data is slightly mixed as the McClellan OB/OS Oscillators remain overbought as do the stochastics as the valuation spread widens. In our opinion, they are being counterbalanced by the new AAII and II Investor Bear/Bull Ratios that continue to find investor fear levels (contrarian indicators) very high. So while the nearly vertical uptrends remain intact, we remain of the opinion that some consolidation is likely that may offer better buying levels.
On the charts, all the major equity indexes closed higher yesterday as all closed at or near their intraday highs. Of note, the COMPQX and NDX closed above their near-term resistance levels, leaving all in near-term uptrends. However, the gains were achieved with negative breadth on the NYSE and NASDAQ as buying became more selective. We would also note that important resistance levels continue to exist on all the charts that could prove challenging, especially given the significant rapid gains of late.
Cumulative market breadth, while negative yesterday, remains positive on the All Exchange, NYSE and NASDAQ. Overbought stochastic levels persist but bearish crossover signals have yet to appear.
The data finds the McClellan 1-Day OB/OS oscillators remaining overbought but less so (All Exchange: +61.1 NYSE: +60.36 NASDAQ: +63.92).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 63% and remains neutral.
- The Open Insider Buy/Sell Ratio lifted to 49.9, also staying neutral.
- The detrended Rydex Ratio (contrarian indicator) slipped slightly to -0.83 with the leveraged ETF traders slightly leveraged short, leaving the indicator mildly bullish.
- This week’s AAII Bear/Bull Ratio (contrarian indicator), while dipping, remains bullish at 1.65 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) is at 35.31/36.3, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally. The crowd remains fearful despite recent strength.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX dipping to $228.05. As such, the SPX forward multiple rose to 20.1 with the "rule of 20" finding ballpark fair value dipping to 17.5 as the valuation gap widened further.
- The SPX forward earnings yield dropped to 4.98%.
- The 10-year Treasury yield closed lower at 2.48. We view resistance as 2.64% while support remains at 2.0%.
In conclusion, while the COMPQX and NDX closed above resistance, the McClellan OB/OS oscillators and stochastic levels still suggest some caution while very bearish investor sentiment remains a counterbalance. The valuation gap is also becoming a concern. As such, we continue to suspect some further consolidation of gains may be likely over the near-term.
SPX: 4,456/4,574 DJI: 34,362/34,940 COMPQX: 13,933/14,490 NDX: 14,575/15,032
DJT: 15,745/16,585 MID: 2,642/2,717 RTY: 2,015/2,090 VALUA: 9,426/9,647