Most Near-Term Chart Trends Remain Neutral
Contrarian Sentiment Indicators Still Very Bullish
All the major equity indexes closed lower Wednesday, posting minor losses, with negative NYSE internals while the NASDAQ had negative breadth but positive up/down volume. Trading volumes declined from the prior session.
The close saw no impact on the near-term chart trends that are largely neutral, as is cumulative market breadth, while two of the indexes generated bullish stochastic crossover signals.
The data is mostly neutral except for contrarian investor sentiment that is excessively fearful and, in our opinion, potentially offering some upside thrust should the crowd eventually crawl out of their fox holes.
As well, valuation finds the SPX trading at a discount to fair value. Yet, while we are slightly more encouraged, further chart progress is required for us to assume we are standing on firmer ground.
On the charts, all the indexes closed lower yesterday with negative NYSE and mixed NASDAQ internals on lighter volume with most closing near the midpoints of their intraday ranges.
The session had no impact on the near-term trends that are neutral on all but the DJT and RTY that are near-term bearish. Cumulative market breadth remains neutral on the All Exchange, NYSE, and NASDAQ as well. The COMPQX and NDX generated bullish stochastic crossover signals, implying some further near-term strength on their part.
Regarding the data, the McClellan OB/OS Oscillators are all neutral (All Exchange: -1.41 NYSE: -22.47 NASDAQ: +15.26).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 5%, staying well below the 25% trigger line, remaining bullish.
- The Open Insider Buy/Sell Ratio dipped to 92.6 as insiders pulled back their buying from the past week.
- On the other hand, the detrended Rydex Ratio (contrarian indicator) remains very bullish -2.53 as the leveraged ETF traders are highly leveraged short.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.97 as the crowd remains fearful.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) also remains on a very bullish signal and still near a decade peak of fear at 42.7/29.4. Such extreme levels of investor fear have typically presaged notable market rallies.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX rose to $236.52. As such, the SPX forward multiple is 15.9 and at a discount to the “rule of 20” finding ballpark fair value at 16.8.
- The SPX forward earnings yield is 6.29%.
- The 10-year Treasury yield closed lower at 3.16%. We view support as 3.0% and new resistance at 3.51%.
In conclusion, the charts and market breadth have recently seen some improvement, offering some encouragement, while investor fear is at historically high levels as the SPX trades at a discount to fair value after trading at a premium over the past several months.
While encouraged by these factors, we believe some further chart and breadth strength is necessary to be more confident that a positive market turn is imminent.
SPX: 3,634/3,839 DJI: 29,760/30,753 COMPQX: 10,532/11,337 NDX: 11,122/11,836
DJT: 12,660/13,384 MID: 2,190/2,339 RTY: 1,600/1,705 VALUA: 7,695/8,172