Data Still Suggesting a Period of Consolidation Likely
All the major equity indexes closed near their intraday highs Thursday, with positive internals on the NYSE and NASDAQ. Trading volumes declined on the NYSE and rose on the NASDAQ from the prior session. However, the high-volume resistance levels on the index charts remained intact and, in our opinion, still suggest the probability of some consolidation of the recent sizable market gains before further progress of note may proceed.
While all the charts remain in near-term uptrends, the data finds the McClellan 1-day OB/OS Oscillators overbought, as are the stochastic levels for the indexes suggesting some headwind. However, the significant degree of bearish sentiment (contrarian indicator) may have some counterbalancing effect. Nonetheless, in aggregate, our dashboard suggests some pause/consolidation of the recent strength is the more probable outlook for the very near term.
On the charts, all the major equity index charts closed higher yesterday with positive internals on the NYSE and NASDAQ with all closing at or near their highs of the day.
- Yet the rally was not sufficient to overcome the high-volume resistance levels that are present on most of the indexes that, in our view, need to be surpassed for further strength to be accomplished. Such high-volume levels typically require multiple attacks before being violated.
- All the chart trends remain in near-term uptrends, with the DJI joining the rest by closing back above its 50 DMA.
- The cumulative advance/decline lines for the All Exchange, NYSE, and NASDAQ remain positive as well.
- However, the stochastic levels on all the charts remain overbought. While they have yet to register any bearish stochastic crossover signals, they are a bit cautionary.
The data finds the McClellan 1-Day OB/OS oscillators more overbought (All Exchange: +85.3 NYSE: +74.89 NASDAQ: +93.85).
- The % of SPX issues trading above 50 DMAs (contrarian indicator) rose to 54% and remained neutral.
- The Open Insider Buy/Sell Ratio lifted to 41.9, also neutral.
- The detrended Rydex Ratio saw a further lessening of their leveraged short exposure to -0.85 and is now mildly bullish.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.78 while the Investors Intelligence Bear/Bull Ratio is 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 Bloomberg's forward 12-month consensus earnings estimate for the S&P 500 lifting to $227.90. The SPX forward multiple rose to 19.8 with the “rule of 20” finding a fair ballpark value around 17.7.
- The SPX forward earnings yield stands at 5.04%.
- The 10-year Treasury yield closed at 2.34. We view resistance as 2.4%. Support remains at 1.87%.
In conclusion, given the size of recent gains with nearly vertical near-term uptrends, as they approach high volume resistance levels on the charts combined with the data, the markets are more likely to consolidate gains before making further progress. Yet extremely bearish investor sentiment may be a counterbalancing and bullish influence.