Data Moderates As Insiders Do Some Buying
All the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as overall volumes rose. However, as all closed near the midpoints of the session, none were able to violate resistance levels or near-term downtrends, leaving all still with short-term bearish projections.
Cumulative market breadth remains bearish as well. As such, signs of improvement on the charts and breadth failed to appear. The data moderated to some degree with only the NYSE McClellan OB/OS Oscillator remaining oversold.
However, insiders did show some buying interest as the Open Insider buy/sell ratio remains neutral. And while the SPX appears to be trading at a discount to fair value by our work, the charts, breadth, and data have yet to suggest a change in the current negative environment. Trends should be respected.
On the charts, the major equity indexes closed higher yesterday with positive breadth. Yet the bounce implied by the McClellan 1-day OB/OS Oscillators was not strong enough to alter the near-term bearish trends on the charts while cumulative breadth remains negative on the All Exchange, NYSE, and NASDAQ as well.
The stochastic levels remain oversold on all but have yet to generate bullish crossover signals. Charts and breadth need improvement in order to become more optimistic, in our opinion.
Regarding the data, only the NYSE McClellan 1-Day OB/OS oscillator remains oversold with the All Exchange and NASDAQ neutral (All Exchange: -37.57 NYSE: -61.56 NASDAQ: -20.68).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) stands at 5% and well below the 25% trigger line, remaining bullish.
- The Open Insider Buy/Sell Ratio increased to 84.0 from 69.1 as insiders did some more buying but remains neutral.
- On the other hand, the detrended Rydex Ratio (contrarian indicator) at -1.93 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 1.89.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) also remained on a very bullish signal and still near a decade peak of fear at 40.0/35.72. We repeat, 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 was slipped slightly to $236.82. As such, the SPX forward multiple is 16.0 and at a discount to the “rule of 20” finding ballpark fair value at 16.6.
- The SPX forward earnings yield is 6.25%.
- The 10-year Treasury yield closed lower at 3.4%. We view support as 3.0% and new resistance at 3.51%.
In conclusion, yesterday’s gains were unable to alter the picture of near-term bearish trends and breadth that counterbalance our view that the SPX is now trading at a discount to ballpark fair value.
We await signs of improvement on the charts and breadth before becoming more enthusiastic.
SPX: 3,724/3,905 DJI: 30,314/31,433 COMPQX: 10,532/11,337 NDX: 11,122/11,836
DJT: 12,660/13,384 MID: 2,262/2,512 RTY: 1,705/1,760 VALUA: 7,958/8,484