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Weak Session Leaves Charts Neutral And Bullish

Published 06/09/2022, 08:31 AM
Updated 07/09/2023, 06:31 AM

Investor Fear Remains Potential Positive Catalyst

All the major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as NYSE volumes dropped and NASDAQ volumes rose from the prior session.

All closed near their intraday lows. Importantly, in our opinion, no support levels or near-term trends were violated, leaving said trends an even mix of neutral and bullish projections while cumulative market breadth remains supportive.

The data remains somewhat mixed except for investor sentiment (contrarian indicator) that still finds the crowd on the bearish side of the boat despite recent market improvements.

We would also reiterate the compression of the SPX forward 12-month p/e to a 17.4 multiple from 23 at the market peak. As such, we remain of the opinion that the worst may well be behind us, suggesting weakness near support levels should be bought.

On the charts, all the major equity indexes closed lower yesterday with negative internals as all closed near their intraday lows. However, the session’s selling pressure was not strong enough to alter the support levels or near-term trends of the indexes.

The NDX, MID, RTY, and VALUA remain near-term bullish with the rest neutral.

Cumulative market breadth remains positive as well for the All Exchange, NYSE and NASDAQ, giving the recent progress a fairly strong foundation in terms of internal structure.

The stochastic levels remain overbought but have yet to generate bearish crossover signals.

The McClellan 1-Day OB/OS oscillators are mixed with the All Exchange: +54.39 (mildly bearish), NYSE: +43.27 (neutral) and the NASDAQ: +60.53 (bearish).

  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 33%, staying neutral.
  • The Open Insider Buy/Sell Ratio declined slightly to 45.0, also staying neutral.
  • On the other hand, the detrended Rydex Ratio (contrarian indicator) deepened to -1.97 and remains in bullish territory as the leveraged ETF traders are still highly leveraged short.
  • This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.81, although a bit less so versus last week’s 2.18 reading.
  • The Investors Intelligence Bear/Bull Ratio (contrary indicator) also remained on a very bullish signal and still near a decade peak of fear. However, we would note bears declined as bulls increased to 38.0/36.2. 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 rose to $236.56. As such, the SPX forward multiple slipped to 17.4 with the “rule of 20” finding ballpark fair value at 17.0.
  • The SPX forward earnings yield is 5.75%.
  • The 10-year Treasury yield closed higher at 3.03%. We view support as 2.89% and resistance at 3.07%.

In conclusion, the fact that the crowd continues to disbelieve the recent market progress that has been matched by improving market breadth while valuation has become much more reasonable than near the market peaks has the potential to be a notable upside catalyst. We believe weakness should be bought when near support.

SPX: 4,074/4,194 DJI: 31,975/33,358 COMPQX: 11,882/12,512 NDX: 12,352/12,058

DJT: 13,790/14,515 MID: 2,464/2,580 RTY: 1,850/1,945 VALUA: 8,742/9,100

Latest comments

drop another 20%, I might nibble
I guess we are near support!
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