Data Generally Neutral Except Positive Sentiment Data Near Peak Fear Levels
The major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading levels dipped from the prior session. All closed near their highs of the day with the S&P 500 and Dow Jones Industrial Average closing above their near-term downtrend lines and are now neutral versus their prior bearish projections while the rest if the indexes remain in downtrends. The data is generally neutral although some of the McClellan OB/OS Oscillators are now in overbought territory. On the other hand, the extreme levels of investor fear, that are contrarian indicators, are near decade highs that have been coincident with market lows which we continue to find encouraging. Yet, while yesterday did offer some improvement, we believe more positive action is required to become more optimistic for the near-term. Mid to long term investors, however, may find prices attractive at current levels.
On the charts, all the major equity indexes closed higher yesterday with positive internals on lower volume for the NYSE and NASDAQ.
- All closed near their intraday highs that found both the SPX and DJI closing above their near-term downtrend lines that are now near-term neutral versus their prior negative implications.
- As well, the DJI closed above near-term resistance.
- Yet the rest of the indexes remain in near-term downtrends that should be respected until proven otherwise.
- Cumulative breadth improved on the NASDAQ, returning to neutral, as are the A/Ds for the All Exchange and NYSE.
- No stochastic signals were generated.
Regarding the data, the McClellan 1-Day OB/OS oscillators are mildly overbought for the All Exchange (+52.67), overbought on the NYSE (72.42) and neutral on the NASDAQ (+39.48).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 23% but remains bullish.
- The Open Insider Buy/Sell Ratio rose to 96.6, staying neutral.
- However, the detrended Rydex Ratio (contrarian indicator page 8) remains very bullish at -2.60 as the ETF traders remain leveraged short at historically high levels. As such, the Rydex/Insider dynamic remains encouraging.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish 1.97, dropping from 2.39.
- The Investors Intelligence Bear/Bull Ratio also remains very bullish signal and at a decade peak of fear at 43.0/27.8. Only twice in the past decade has bearish sentiment been this extreme, both of which were coincident with market bottoms.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX lifted to $235.60. As such, the SPX forward multiple remains at 16.9 and at a discount to the “rule of 20” finding ballpark fair value at 17.2. Said discount has not been seen in the markets for several months.
- The SPX forward earnings yield is 5.92%.
- The 10-year Treasury yield closed lower at 2.75%. We view support as 2.75% and resistance at 3.2%.
In conclusion, yesterday’s chart action saw some encouraging signals appear. However, more technical improvements are necessary to become more optimistic for the short term. Yet, we believe investor sentiment and valuation suggest medium to long term investors may want to start putting some money to work.
SPX: 3,910/4,045 DJI: 31,504/32,270 COMPQX: 11,037/11,563 NDX: 11,485/12,058
DJT: 13,107/14,272 MID: 2,337/2,439 RTY: 1,755/1,855 VALUA: 8,378/8,551