Selling Persists But With Higher Intraday Lows

The major equity indexes closed lower Thursday, with negative internals on the NYSE and NASDAQ as trading volumes dropped from the prior session. Most closed near their intraday lows, with several violating support levels. However, one ray of hope may come from the fact that the vast majority made higher intraday lows versus Monday’s deep selloff lows. While the charts and market breadth have yet to send a glimmer that the worst might be over, in our opinion, the data is suggesting that fear is at peak levels and pressure has built to levels that have historically been coincident with notable rallies as discussed below. Thus, we remain expectant of some strength returning to the markets at some point in the near term. Chart confirmation will be required, however.

On the charts, all the major equity indexes closed lower yesterday with negative internals on lighter volume on the NYSE and NASDAQ.

• All closed near their lows of the day with S&P 500, NASDAQ Composite, Dow Jones Transportation, S&P Midcap 400 and VALUA breaking support as all the indexes remain in near-term downtrends with no technical signs of reversal at this point.
• However, some small encouragement may come from all making higher intraday lows versus the deep lows of Monday’s session, except for the DJT and MID.
• Cumulative market breadth also has yet to show a change in the current downtrends for the all exchanges, NYSE and NASDAQ.
• Bullish stochastic crossovers remain present on all.

We continue to believe the data is sending strong signals that a notable rally may be forthcoming as said data increases in pressure.

• The McClellan 1-Day OB/OS Oscillators remain deeply oversold on both their 1- and 21-day readings and at March/April 2020 lows the presaged a major rally (All Exchange: -123.75/-117.02 NYSE: -133.67/-94.84 NASDAQ: -118.68/-134.01).
• The percentage of SPX issues trading above their 50 DMAs dipped to 27% and still at levels coincident with correction lows.
• The Open Insider Buy/Sell Ratio jumped further to 109 and near levels preceding rallies since 2017. On Jan. 1, it was 31.
• In contrast, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders is at 0.29 versus its bearish reading of 1.24 on January 1. They have been dumping stock.
• This week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 1.53 while the Investors Intelligence Bear/Bull Ratio (25.0/39.8) saw the number of bulls dropped notably.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $222.66 for the SPX. As such, the SPX forward multiple dropped 19.4 with the “rule of 20” finding ballpark fair value at 18.2.
• The SPX forward earnings yield stayed above 5% at 5.1%.
• The 10-year Treasury yield dipped to 1.81. We view support for the 10-year at 1.60% with resistance at 1.93%.

In conclusion, while the charts and breadth remain awful, the data continues to build up pressure for a notable upside reversal, in our opinion.

SPX: 4,290/4,437
DJI: 34,013/35,072
COMPQX: 13,281/13,923
NDX: 13,990/14,503
DJT: 14,659/15,608
MID: 2,516/2,647
RTY: 1,669/2,140
VALUA: 8,927/9,326