Near-Term Neutral Trends UnchangedNASDAQ 1-Day OB/OS Mildly Overbought
The major equity indexes closed mixed yesterday with positive NYSE internals while the NASDAQ had positive breadth but negative up/down volume. All closed near their intraday highs, post a weak open, with two indexes testing resistance. However, said resistance was not violated, leaving all the index charts remaining in near-term neutral trends.
Meanwhile the data that remains generally neutral finds the 1-Day McClellan OB/OS Oscillator for the NASDAQ mildly overbought. Counterbalancing the NASDAQ OB/OS is the extreme level of fear on the crowd’s part as the AAII Bear/Bull Ratio released Monday stood at 2.03 as previously discussed. As a contrarian indicator, it bodes well for the market as it implies potential overhead supply has already been dramatically reduced.
As the outlook for the Ukraine/Russia issue shifts minute to minute, we continue to view the charts and data suggestive of more sideways action before strength may resume.
On the charts, the indexes closed mixed yesterday with positive NYSE and mixed NASDAQ internals, both on lighter volume. All closed near their highs of the day with only the DJI, COMPQX, and NDX closing in the red. The SPX and COMPQX did test their respective overhead resistance levels but were unable to surpass them.
As such, while we believe more tests may be required before resistance is overcome, the action left all of the indexes in near-term neutral trends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS for the NASDAQ slightly overbought with the rest neutral (All Exchange: +41.21 NYSE: +26.03 NASDAQ: +51.45).
- The % of SPX issues trading above their 50 DMAs rose to 42%, staying neutral.
- The Open Insider Buy/Sell Ratio also lifted to 40.70 and is neutral as well.
- The detrended Rydex Ratio (contrarian indicator) saw a dip -0.09 but also remains neutral.
- 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 $224.96. As such, the SPX forward multiple is now 19.9, its lowest since May 2020, with the "rule of 20" finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.03%.
- The 10-year Treasury yield closed at 2.05% and at what we view as resistance. We see support at 1.8%
In conclusion, the sideways chop for the markets continues. And while it may take some time before resistance levels can be overcome, the extreme level of fear within the crowd is of some consolation as it is near peak levels, typically followed by rallies.
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