All Index Charts Turn Near-Term Negative
Some Data Suggests Bounce Post Higher Intraday Lows On Charts
All the major equity indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as trading volumes rose on both exchanges. Most closed near the mid-points of their intraday ranges. On the negative side, multiple near-term support levels were violated leaving all in near-term downtrends. However, in our opinion, some solace may be found in the fact that all made higher intraday lows versus those of their climax selloffs on Jan. 25.
We had stated previously our opinion that the indexes would likely be banging back and forth between resistance and support for a period before resistance levels could be overcome. That continues to appear to be the case. The data is offering some implications for a bounce as the NYSE is now oversold on its 1-day McClellan OB/OS Oscillator while stochastic levels are deeply oversold as insiders did some buying as the crowd remains terrified. As such, we now expect a bounce. However, violations of resistance and downtrend lines need to come to fruition before turning more positive.
On the charts, all the major equity indexes closed lower yesterday with negative internals and heavier trading volume on the NYSE and NASDAQ. Some buying entered the picture in the final hour, leaving all near the midpoints of their intraday ranges. Yet, violations of support were seen on all, leaving all in near-term negative trends.
We would note, however, higher intraday lows were established above those of the market climax selloff of Jan. 25. We find that mildly encouraging.
Cumulative market breadth deteriorated further with the cumulative advance/decline lines for the All Exchange NYSE and NASDAQ negative and below their 50 DMMAs. Stochastic levels are deeply oversold on the SPX, DJI, COMPQX, NDX and DJT but bullish crossovers have yet to appear.
The McClellan 1-Day OB/OS oscillators find the NYSE oversold and the rest neutral (All Exchange: -46.2 NYSE: -5.89 NASDAQ: -41.37).
- The % of SPX issues trading above their 50 DMAs dropped to 30% and near levels coincident with market rallies.
- The Open Insider Buy/Sell Ratio lifted to 42.4 as insiders did some buying. It remains neutral as well.
- The detrended Rydex Ratio (contrarian indicator) rose to -0.18 but also remains neutral.
- However, this week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) remains a potentially significant factor for the near term, in our opinion. The new AAII reading is 1.79 and still shows the crowd near peak levels of fear. It suggests, should some good news hit the tape, a positive market response may be greater than usual. However, said news has yet to appear.
- The Investors Intelligence Bear/Bull Ratio (25.9/34.7) (contrary indicator) remains mildly bullish as well as bearish sentiment rose slightly while the bulls retreated once again.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $225.00. 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 5.23%.
- The 10-year Treasury yield closed at 1.95%. We view resistance at 2.05% and support at 1.8%.
In conclusion, we now expect a bounce but need chart and breadth improvements to become more positive.
SPX: 4,236/4,414 DJI: 33,236/34,364 COMPQX: 13,240/13,726 NDX: 13,713/14,168
DJT: 14,558/14,984 MID: 2,573/2,651 RTY: 1,990/2,140 VALUA: 9,147/9,342