Detrended Rydex Ratio Turns Bullish
All the major equity indexes closed mixed Wednesday with negative internals on the NYSE and NASDAQ as NYSE volumes fell and NASDAQ volumes rose from the prior session. As we had speculated near the recent market lows, several of the charts tested their high-volume resistance levels that now may require further work before being penetrated to the upside. As such, they suggest a period of some consolidation for the near-term.
The data, which has generally moderated as of late, posted their deeply oversold levels mixed with aggressive insider buying. They did, however, manage to turn on one more green light as the typically wrong leveraged ETF traders that were leveraged long at early January highs at +1.24 are now leveraged short at -1.17.
Although, while the Rydex is encouraging, the high-volume overhead supply on the indexes suggests a period of some consolidation over the near term.
On the charts, closed mixed yesterday with negative internals on the NYSE and NASDAQ. The close found the MID, RTY, and VALUA closing lower on the day as the rest posted gains.
We would note what we believe to be an important event was the SPX, DJI, NDX, and VALUA tested their high-volume resistance levels as we had speculated near the recent market lows. In our view, the magnitude of the overhanging supply now suggests it may require multiple attempts to overcome said resistance. This may likely result in a period of some consolidation over the near-term.
On the plus side, the DJI closed above its 50 DMA while the DJT closed above resistance. All the charts are in neutral trends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS Oscillators remaining neutral (All Exchange: +18.18 NYSE: +12.53 NASDAQ: +22.48). The % of SPX issues trading above their 50 DMAs rose to 48%, also staying neutral. The Open Insider Buy/Sell Ratio slipped to 86.1 as insiders pulled back from their recent aggressive buying, staying neutral.
However, the detrended Rydex Ratio (contrarian indicator) sank to a bullish -1.17 as they are now leveraged short versus their leveraged long exposure of +1.24 at the beginning of January and at the market highs. As a contrarian indicator, it’s a positive.
As well, this week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 2.0, double the number of bears than bulls, while the Investors Intelligence Bear/Bull Ratio (26.7/34.9) (contrary indicator) saw the number of bears rise as bulls fell.
Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $224.52 for the SPX. As such, the SPX forward multiple is 20.4 with the “rule of 20” finding ballpark fair value at 18.2. The SPX forward earnings yield is 4.89%.
The 10-year Treasury yield dipped to 1.77. We view support for the 10-year at 1.60% with resistance at 1.93%.
In conclusion, with the charts having achieved their rallies to high volume resistance levels and the generally neutral data, except for the Rydex, suggest some consolidation is now likely over the near-term.
SPX: 4,435/4,587 DJI: 34,743/35,658 COMPQX: 13,918/14,524 NDX: 14,469/15,208
DJT: 15,272/15,860 MID: 2,603/2,699 RTY: 1,940/2,140 VALUA: 9,294/9,523