The major equity indexes closed lower Friday with negative internals on the NYSE and NASDAQ as trading volumes rose on both exchanges with the expiration of options.
Again, all closed near their lows of the day and below their respective support levels as all remain in near-term downtrends. Yet, while the charts have yet to suggest an imminent reversal and relief from the selling pressure, the data has intensified its levels that strongly suggest, in our opinion, some relief may well be at hand with the potential to test their resistance levels.
Our comments Friday suggested that likelihood that did not come to fruition. But now the signals are even stronger as discussed below. As such, we are keeping our eyes open for some indication from the charts that would coincide with the data. We suspect that may come in the form of the indexes having a notable recovery from intraday lows at some point. The data suggests that may be sooner than later.
On the charts, the major equity indexes closed lower Friday with broadly negative internals on the NYSE and NASDAQ on heavy trading volume coincident with options expiration. All closed near their intraday lows and below support, leaving all in near-term downtrends with no suggestions that a pause/reversal is taking place at this stage.
Market breadth continued to weaken with the cumulative advance/decline lines for the All, Exchange, NYSE and NASDAQ negative and below their 50 DMAs. However, the stochastic levels are now extremely oversold and at levels implying relief, as noted on the charts, as they have been associated with forthcoming rallies. All are in single digits with the COMPQX, NDX, MID, SPX, and VALUA less than one. Said levels are rare.
The data finds the McClellan 1-Day OB/OS Oscillators now very oversold and in concert with the stochastic levels (All Exchange: -122.93 NYSE: -129.08 NASDAQ: -120.12).
- The % of SPX issues trading above their 50 DMAs slipped to 32% and is also at levels suggesting a bounce.
- The Open Insider Buy/Sell Ratio lifted to 55.8, staying neutral as insiders did some buying.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dropped to 0.7. While it remains neutral, it suggests the crowd is getting more nervous.
- Last week’s contrarian AAII Bear/Bull Ratio is 0.98, also stayed neutral. The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator) remains neutral as the number of bulls and bears dropped from the prior week.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $221.32 for the SPX. As such, the SPX forward multiple slipped below 20 to 19.9 with the “rule of 20” finding ballpark fair value at 18.3.
- The SPX forward earnings yield rose above 5% to 5.03%.
- The 10-year Treasury yield dropped to 1.75%. We view support for the 10-year at 1.60% with resistance at 1.93%.
In conclusion, as our expectations for some relief from the recent market carnage have yet to appear, there are multiple data points suggesting, if we are not at a market low, we are very near one. We need the charts to confirm.
SPX: 4,398/4,535 DJI: 34,013/35,072 COMPQX: 13,798/14,500 NDX: 14,384/15,200
DJT: 14,896/15,608 MID: 2,569/2,688 RTY: 1,669/2,140 VALUA: 9,181/9,384