Pause Day Leaves Charts Unchanged; Data Continues To Suggest Rallies To Resistance

The major equity indexes closed mostly lower Monday with only the DJI posting a gain. However, internals were positive on the NYSE, although those of the NASDAQ were negative as both indexes saw lower volumes from the preceding session with most closing near the midpoints of the intraday ranges.

No alterations of near-term trends were seen, leaving them a mix of neutral and negative. Yet, some encouragement is coming from the stochastic readings as all saw bullish stochastic crossovers generated.

Meanwhile, the data continues to suggest a continuation of market strength that, in our opinion, may well result in tests of the various index resistance levels. Also. market valuation has seen some significant tempering that suggests it is possible the markets have seen their lows assuming chart support levels hold.

On the charts, all but the DJT closed lower yesterday. However, the session had no impact on the chart near-term trends, leaving the SPX, DJI, and DJT neutral and the rest negative.

There was no shift in the cumulative breadth levels that find the All Exchange and NYSE neutral while the NASDAQ's remains negative. The stochastic readings, however, are sending some encouragement as their oversold conditions reversed to bullish stochastic crossover signals across the board.

As noted recently, our view of the data continues to suggest further market strength that we suspect may lead to tests of the resistance levels of each of the indexes.

• The McClellan 1-Day OB/OS oscillators remain neutral and non-threatening (All Exchange: -14.72 NYSE: -8.16 NASDAQ: -19.56).
• The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 22% but remains on a bullish signal and near its lowest level in two years.
• The Open Insider Buy/Sell Ratio is unchanged at 103.7, remaining neutral but showing more buying activity by insiders than any other time since the February market lows.
• The most encouraging data factor for the near-term, in our view, remains the sentiment data. The detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.53 as the leveraged ETF traders have expanded their leveraged short exposure. Its chart shows only five times in the past decade have the ETF traders been so heavily leveraged short, all of which were followed by rallies.
• Last week’s AAII Bear/Bull Ratio (contrarian indicator) was a very bullish 2.75 and at a 20-year peak matched only by the 2008-2009 financial crisis as investment banks collapsed. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) was on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear remains at very extreme levels.
• The forward 12-month consensus earnings estimate from Bloomberg for the SPX lifted to $235.64. As such, the SPX forward multiple is 17.0 and at a slight discount to the “rule of 20” finding ballpark fair value at 17.1.
• The SPX forward earnings yield is 5.88%.
• The 10-year Treasury yield closed lower at 2.88%. We view support as 2.5% and resistance at 3.2%.

With investor sentiment at levels that have historically preceded market rallies and the rest of the data encouraging as valuation has seen a notable moderation, we believe the market is likely to see more strength.

SPX: 3,894/4,152 DJI: 31,074/32,995 COMPQX: 11,167/12,259 NDX: 11,886/13,044

DJT: 14,290/14,906 MID: 2,299/2,513 RTY: 1,710/1,855 VALUA: 8,122/8,882