Charts See More Resistance Levels Violated
All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes declined on both from the prior session. Some closed near their highs of the day as others closed near their midpoints.
Three of the indexes closed above resistance, leaving all in near-term uptrends and above their 50 DMAs. However, the nearly vertical nature of the recent rally is likely not sustainable, in our opinion.
While investor sentiment remains near historic levels of fear that we view as an eventually strong upside catalyst, some of the data is sending signals that some pause/consolidation of the recent notable gains would not be surprising, suggesting better buying opportunities may be in the offering in the not-too-distant future.
On the charts, all the major equity index charts closed higher yesterday with positive internals on lower volume for the NYSE and NASDAQ. While the indexes closed at various points of their intraday ranges, the SPX, COMPQX, and NDX closed above their resistance levels with the NDX also reclaiming its 50 DMA. Thus, all are in near-term uptrends an above their 50 DMAs. However, the near-term trends have become almost vertical in nature that are likely not sustainable, in our view.
Cumulative breadth remains positive for the All Exchange, NYSE and NASDAQ. Yet, the stochastic levels remain quite overbought on all and in the 90s. They have not yet generated bearish crossover signals that would raise some yellow flags. Also, the VIX has pulled back to support suggesting we may see some increase in volatility.
The data finds the McClellan 1-Day OB/OS oscillators overbought with the NASDAQ very overbought and still suggesting a pause/consolidation over the near term (All Exchange: +96.08 NYSE: +87.14 NASDAQ: +104.53).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 55%, staying neutral.
- The Open Insider Buy/Sell Ratio slipped to 45.6, also staying neutral.
- On the plus side, the detrended Rydex Ratio (contrarian indicator) sank further to -3.98, showing leveraged short exposure levels seen only four times in the past decade, each of which was followed by a significant rally.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.78 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 36.5/30.6, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX dipping to $227.62. As such, the SPX forward multiple rose to 19.8 with the "rule of 20" finding ballpark fair value around 17.6.
- The SPX forward earnings yield dipped to 5.04%.
- The 10-year Treasury yield closed at 2.37 after testing resistance intraday. We view resistance as 2.4%. Support remains at 1.87%.
In conclusion, we now find ourselves in a debate between the very encouraging sentiment data while the vertical market gains combined with the OB/OS, VIX and stochastic readings suggesting better buying opportunities may be seen in the not-too-distant future.
SPX: 4,384/4,530 DJI: 33,914/34,830 COMPQX: 13,700/14,147 NDX: 14,126/14,749
DJT: 15,745/16,585 MID: 2,642/2,717 RTY: 2,015/2,090 VALUA: 9,426/9,647