Several Support Levels Tested SuccessfullyAAII Bear/Bull Ratio Near Peak Fear Levels And Bullish
The major equity indexes closed mostly lower Monday with negative internals on the NYSE and NASDAQ as trading volumes declined from those of the prior session. All closed near the midpoints of their intraday ranges. Importantly, in our opinion, several saw their near-term support levels retested successfully. Thus, the mostly down day had no impact on supports or trends as all remain in near-term neutral technical projections as overhead supply has yet to be surpassed.
Meanwhile, the data remains generally neutral with one notable exception, in our view. The new AAII Bear/Bull Ratio at 2.03 (contrarian indicator) finds the crowd around peak levels of fear over the past two decades, all of which were eventually followed by rallies with some being significant. As such, we cannot say the market is "out of the woods" just yet. However, the issues noted above are encouraging.
On the charts, the indexes closed mostly lower yesterday with negative internals on lighter trading volumes. The NDX and DJT were the only ones that managed to post gains. However, we view the session as somewhat of a success as the SPX, DJI, COMPQX, NDX, MID, and VALUA all saw successful retests of their near-term support levels with all closing near the midpoints of their intraday ranges. The end result was no change in the current near-term neutral trends that exist across the board.
Also, the down session had no impact on the cumulative advance/decline lines fir the All Exchange, NYSE and NASDASQ that remain neutral as well. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS still neutral (All Exchange: -21.08 NYSE: -49.17 NASDAQ: -3.04).
- The % of SPX issues trading above their 50 DMAs dipped to 35%, staying neutral.
- The Open Insider Buy/Sell Ratio also dipped to 40.9 and neutral.
- The detrended Rydex Ratio (contrarian indicator) saw a fractional lift -0.13 but remains neutral as well.
- This week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) may be the most significant factor for the near term, in our opinion. It was unchanged at a very bullish 2.03 that is coincident with peak levels of crowd fear over the past two decades. The chart below shows that in each case, over the past 20 years, said peak levels were eventually followed by rallies, some of which were significant.
- The Investors Intelligence Bear/Bull Ratio (25.0/35.7) (contrary indicator) turned mildly bullish as well.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX edging up to $224.85. As such, the SPX forward multiple is now 19.6 with the "rule of 20" finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.12%.
- The 10-year Treasury yield closed at 2.0%. We see resistance around 2.05% with support at 1.8%
In conclusion, while it is too early to say the recent market storm has passed, the fact that the charts reasserted their support levels as the crowd heads for the hills at historic levels suggest the sky may be starting to see some parting of the clouds. Violations of resistance will be required to become more optimistic.
SPX: 4,357/4,500 DJI: 34,350/35,267 COMPQX: 13,622/14,203 NDX: 14,151/14,778
DJT: 14,078/15,492 MID: 2,628/2,740 RTY: 1,990/2,140 VALUA: 9,385/9,657