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S&P 500 Violates Resistance, Yet Investor Sentiment Still Bearish

Published 03/28/2022, 09:32 AM
Updated 07/09/2023, 06:31 AM

Data Still Suggesting A Period Of Consolidation Likely

The major equity indexes closed mostly higher Friday with only two posting minor losses as all closed near their intraday highs. However, internals were split with the NYSE’s positive and the NASDAQ’s negative.

The only technical event of note was the SPX closing above resistance while the resistance levels on the remainder of the charts remain intact. Meanwhile the data, in our opinion, continues to imply the markets may likely stay in a period of consolidation from their recent nearly vertical gains from the middle of the month. As well, the valuation gap has widened a bit given the recent rise in the 10-year Treasury yield.

On the charts, the COMPQX and NDX closed slightly lower Friday as the rest posted gains. While the NYSE saw positive internals on higher volume, the NASDAQ internals were negative as trading volumes rose there as well. All closed near their highs of the day with the only technical event of note being the SPX closing above near-term resistance as the resistance levels of the rest of the indexes remain intact.

The nearly vertical and sizable gains on the indexes post their 3/14 lows suggested to us that a period of some consolidation remained most likely, as was typically the case when charts have sizable and rapid moves to high volume resistance levels.

The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remained positive but below their 50 DMAs. Regarding stochastic readings, the RTY registered a bearish stochastic crossover as the rest were still overbought.

The data finds the McClellan 1-Day OB/OS oscillators remaining overbought (All Exchange:  +70.46 NYSE: +69.14 NASDAQ: +72.62).

  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 60% and remains neutral.
  • The Open Insider Buy/Sell Ratio lifted to 44.9, also staying neutral.
  • The detrended Rydex Ratio (contrarian indicator) slipped slightly to -0.87 with the leveraged ETF traders slightly leveraged short, leaving the indicator mildly bullish.
  • Last week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.78 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) was at 36.5/30.6, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally. New readings will be available to us tomorrow.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $228.05. As such, the SPX forward multiple rose to 19.9 with the "rule of 20" finding ballpark fair value dipping to 17.7 as the valuation gap widened.
  • The SPX forward earnings yield stands at 5.02%.
  • The 10-year Treasury yield closed higher and above resistance at 2.49. We view new resistance as 2.64%. Support remains at 2.0%.

In conclusion, while the SPX violated resistance Friday, the McClellan OB/OS oscillators and stochastic levels suggest some caution while very bearish investor sentiment remains a counterbalance. As such, we continue to suspect some further consolidation of gains may be the most probable near-term outcome.

SPX: 4,456/4,574  DJI: 34,362/34,940 COMPQX: 13,844/14,225  NDX: 14,383/14,778                         

DJT: 15,745/16,585  MID: 2,642/2,717  RTY: 2,015/2,090  VALUA: 9,426/9,647

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