Multiple Charts Negative As Supports Violated
McClellan 1-Day OB/OS Oscillators Oversold
All the major equity indexes closed lower Friday with negative internals on the NYSE and NASDAQ as trading volumes rose from the prior session. While most closed near the midpoints of their intraday ranges, all but two closed below support, leaving all back in near-term downtrends except the DJT that remained neutral.
Meanwhile, the data finds the McClellan 1-day OB/OS Oscillators back in oversold territory with investor fear near two-decade peak levels. Nonetheless, each notable rally of late that has suggested a positive turning point for the markets has failed.
Violations of resistance on volume that are able to hold their gains for more than 1 or 2 sessions, in our view, are needed to feel more sanguine. So, while long term investors may want to dip their proverbial toes in the water, the markets continue to struggle against a strong headwind.
On the charts, all the major equity indexes closed lower Friday with negative internals on higher trading volumes. The only two charts that were able to sustain themselves above support were the SPX and DJI. The rest saw violations. The end result regarding near-term trends was all are near-term negative except the DJT that was still neutral.
The session did nothing to help cumulative market breadth for the All Exchange, NYSE, and NASDAQ advance/decline lines that were bearish and below their 50 DMAs. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS oscillators back in oversold territory (All Exchange: -86.46 NYSE: -74.01 NASDAQ: -94.0).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) slipped to 27%, also staying neutral but close to turning positive.
- The Open Insider Buy/Sell Ratio is 84%, remained neutral post their active buying activity over the past several sessions.
- Importantly, the most encouraging data factor for the near-term, in our view, remained the detrended Rydex Ratio (contrarian indicator) that was very bullish at -3.19. As 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. It was deeper than the reading that implied last Wednesday’s sizable rally.
- As well, Last week’s AAII Bear/Bull Ratio (contrarian indicator) rose further to a very bullish 2.97 and at a 20-year peak matched only by the 2008-2009 financial crisis. Crowd fear is at very extreme levels. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) was on a bullish signal at 32.9/34.2.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $235.57. Thus, the SPX forward multiple was 17.5 with the “rule of 20” finding ballpark fair value at 16.9.
- The SPX forward earnings yield was at 5.71%.
- The 10-year Treasury yield closed higher at 3.12%. We view support as 2.5% and new resistance at 3.2%.
In conclusion, rough seas persist for the markets despite investor sentiment and oversold conditions. While long term investors may be doing some buying, the 10 Year Treasury continues to put downward pressure on stocks. Chart of improvements are essential, in our opinion, to be more constructive.
SPX: 4,110/4,300 DJI: 32,681/33,602 COMPQX: 11,962/12,686 NDX: 12,280/13,506
DJT: 14,600/15,108 MID: 2,411/2,551 RTY: 1,800/1,860 VALUA: 8,639/8,682