All the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading volume lifted from the previous session. All closed at or near their intraday highs with several closing above their near-term resistance levels as one index turned positive.
However, high volume resistance that was tested on the SPX yesterday, as we had been projecting, has yet to be violated and may present a near term barrier for further progress on a macro basis.
While the charts saw improvements, including cumulative market breadth, the data has turned more mixed with most of the 1-day McClellan OB/OS Oscillators now in overbought territory as their prior deeply oversold conditions have now been fully expressed.
As a result, while we remain encouraged in our intermediate term outlook, we now suspect a period of consolidation may be likely before further progress can be achieved for the near-term.
On the charts, all the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes rose on both. All closed at or near their highs of the day with several positive technical events being registered.
The DJI, DJT, MID, and VALUA all closed above near-term resistance as the DJI’s near-term trend turned positive from neutral. However, the SPX closed at high volume resistance that we suspected may be a barrier that would require some work to be overcome. The COMPQX and NDX both closed near their high-volume resistance levels as well.
On the plus side, the cumulative advance/decline lines for the All Exchange and NASDAQ turned positive as the NYSE’s stayed neutral. Several stochastic readings are now overbought but have yet to generate bearish crossover signal.
The data finds the McClellan 1-Day OB/OS Oscillators for the NASDAQ and All Exchange overbought with the NYSE neutral (All Exchange: +69.37 NYSE: +43.6 NASDAQ: +87.73).
- The % of SPX issues trading above their 50 DMAs rose to 51%, staying neutral.
- The Open Insider Buy/Sell Ratio slipped further to 38.8 and remains neutral.
- The detrended Rydex Ratio (contrarian indicator) dipped to -0.15 but also remains neutral.
- This week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) saw another rise in bearish sentiment to a very bullish 2.03 and double the number of bears than bulls as a positive as it is near 20-year peak levels of fear. The Investors Intelligence Bear/Bull Ratio (25.0/35.7) (contrary indicator page 9) remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $239.71. As such the SPX forward multiple is now 19.1 with the “rule of 20” finding ballpark fair value at 18.1.
- The SPX forward earnings yield stands at 5.22%.
- The 10-year Treasury yield closed at 1.93%. We see resistance around 2.05% with support at 1.8%
In conclusion, the magnitude of the recent rally, combined with the OB/OS oscillators as major indexes now test their high-volume resistance levels, suggest the markets may take a pause here to consolidate before resuming strength, in our opinion.
SPX: 4,435/4,587 DJI: 35,009/36,128 COMPQX: 13,961/14,524 NDX: 14,469/15,208
DJT: 15,270/15,757 MID: 2,628/2,740 RTY: 1,990/2,140 VALUA: 9,385/9,657