Charts Fail As Data Turns More Positive
All the major equity indexes closed lower Wednesday with negative internals on the NYSE ands NASDAQ as trading volumes declined from the prior session. Selling pressure persisted throughout the session as all closed at or near their intraday lows with only the SPX and DJI not violating support.
However, all support levels look to be violated on the open as the markets are indicating a sizable gap down as a result of Russia’s invasion of Ukraine last night. As such, the charts and market breadth are notably negative with no current implications of positive reversals. However, some of the data is at extremes that suggest today may present a buying opportunity for investors with a longer-term time horizon as valuations have been notably compressed while investor sentiment is near panic levels that have been coincident with market near-term bottoms.
Today’s close will be key, in our opinion, should the indexes manage to stage a recovery from their deep gaps down at the open.
On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as trading volumes lightened from the prior session. All closed near their lows of the day leaving all still in their near-term negative trends with no technical signals of an imminent reversal. However, the extreme degree of weakness indicated on the open may establish new supports of import.
Meanwhile, market cumulative breadth continues to deteriorate with the advance/decline lines for the All Exchange, NYSE and NASDAQ negative and below their 50 DMAs.
Yet while the charts and breadth become darker, stochastic levels are now deeply oversold with all but one down to single digits. Still, bullish crossover signals have yet to appear.
The data, in our opinion, does offer some encouragement. The McClellan 1-Day OB/OS oscillators are now oversold but not at extremes (All Exchange: -69.92 NYSE: -77.86 NASDAQ: -67.05). The open’s weakness may likely push them to said extremes.
- The % of SPX issues trading above their 50 DMAs dropped to 25%. The chart on page 10 shows this level to be coincident with market rallies over the past two years.
- The Open Insider Buy/Sell Ratio is a neutral 41.
- The detrended Rydex Ratio (contrarian indicator) dipped to -0.35 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. The bearish side of the boat is extremely crowded with potential for a notable shift.
- 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 $225.15. As such, the SPX forward multiple is now 18.8 with the "rule of 20" finding ballpark fair value at 18.1, its narrowest spread since April 2020.
- The SPX forward earnings yield stands at 5.33%.
- The 10-year Treasury yield closed at 1.98%. We view resistance at 2.05% and support at 1.8%.
SPX: 4,166/4,376 DJI: 32,484/33,834 COMPQX: 12,561/13,233 NDX: 13,153/13,986
DJT: 14,266/14,984 MID: 2,516/2,619 RTY: 1,935/1,990 VALUA: 8,921/9,230