Indexes Decline With Mixed Chart Signals
Data Remains Largely Neutral Except For Extreme Bearish Sentiment
All the major equity indexes closed lower Friday with negative internals on the NYSE and NASDAQ as trading volumes rose on both from the prior session. However, the down session left all but one of the charts in near-term neutral trends with a mix of some encouraging and cautionary signals.
The net result, in our view, is the indexes remain in near-term neutral trends as they continue to bounce up and down between their support and resistance levels with no resolution of future trends at the moment.
While several of the indexes saw successful tests of support, two of them violated to the downside. Regarding the data, it remains mostly neutral excepting the sentiment levels that show extreme levels of bearish sentiment that, as contrarian indicators, suggest any shift in their opinion to a less negative outlook could be impactful. For now, it appears the indexes may remain within their volatile trading ranges.
On the charts, all the major equity indexes closed lower with negative internals on higher volume. The close left the charts telling disparate stories regarding the very near term.
On the plus side, the SPX, DJI, and DJT tested support successfully and closed near their highs of the day and well above their intraday lows, forming positive hammer signals that suggest a near-term washout of sellers. The NDX and VALUA tested supports as well, closing near their midpoints. We would also note all remain well above their 2/24 washout levels.
On the other hand, the COMPQX and MID closed below support yet remain neutral. Only the VALUA is in a near-term downtrend.
Cumulative breadth weakened on the NASDAQ, turning negative, while the All Exchange and NYSE A/Ds remained neutral. No stochastic signals were generated.
The data remains generally neutral except for investor sentiment.
- The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -11.37 NYSE: -0.32 NASDAQ: -21.7) failing to become oversold.
- The % of SPX issues trading above their 50 DMAs was unchanged at 33%, staying neutral.
- The Open Insider Buy/Sell Ratio is neutral, dipping to 39.9.
- The detrended Rydex Ratio (contrarian indicator) however, stayed at -1.56. These historically wrong traders are now heavily leveraged short, adding to the already heavy levels of bearish sentiment.
- Last week’s AAII Bear/Bull Ratio (contrarian indicator) remained a potentially significant factor for the near term, as well. The AAII reading was 1.98 versus its prior 1.79 and found 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) stayed bullish as well.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX at $226.04. As such, the SPX forward multiple is now 19.2 with the "rule of 20" finding ballpark fair value at 18.3.
- The SPX forward earnings yield stands at 5.22%.
- The 10-year Treasury yield closed at 1.77 and below support. We view resistance at 1.84% and new support at 1.67%.
In conclusion, Friday’s weakness and volatility left the market in volatile trading ranges that are unresolved.
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