All Indexes Violate ResistanceVolatility May Continue As Data Turns More Neutral
All the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as trading volumes dipped on both. All closed near their intraday highs, following on Thursday’s surge. Importantly, every index closed above its respective near-term resistance level as several closed above their near-term downtrend lines as well, turning neutral from negative.
Meanwhile, the data remains largely neutral as well with the 1-Day McClellan OB/OS Oscillators not yet overbought despite the massive gains from Thursday’s opening low. Thus, we now believe the charts and data are suggesting we have seen near-term lows established for the indexes while volatility may continue, but within a new and higher trading range.
On the charts, all the major equity indexes closed higher Friday with positive internals on lighter trading volume for the NYSE and NASDAQ. All closed near their highs of the day with every index closing above its near-term resistance level. As well, the SPX, DJI, COMPQX, NDX, DJT, and RTY closing above their near-term downtrend lines, shifting said down trends from negative to neutral. The MID and VALAU remain in negative trends at this time.
While market breadth was strong, it was insufficient to change the current near-term down trends for the All Exchange, NYSE and NASDAQ from negative as all remain below their 50 DMAs. Yet there is some encouragement coming from the stochastic levels as every index registered a bullish stochastic crossover. The data moderated, not surprisingly given recent strength.
- The McClellan 1-Day OB/OS oscillators are all neutral, moving into plus territory but not overbought (All Exchange: +11.54 NYSE: +10.21 NASDAQ: +11.34).
- The % of SPX issues trading above their 50 DMAs rose to 40% and is now neutral versus its prior bullish reading of 24%.
- The Open Insider Buy/Sell Ratio is neutral, but lifted to 44.8 as insiders did some buying.
- The detrended Rydex Ratio (contrarian indicator) rose to -0.31 and is neutral as well. The typically wrong leveraged ETF traders remain nonbelievers of recent strength that we view as a positive.
- Last week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) remained a potentially significant factor for the near term. The AAII reading was 1.79 and found the crowd still near peak levels of fear. New poll reading will be available tomorrow.
- The Investors Intelligence Bear/Bull Ratio (25.9/34.7) (contrary indicator) remained mildly bullish as well.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting slightly to $225.19. As such, the SPX forward multiple is now 19.5 with the "rule of 20" finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.14%.
- The 10-year Treasury yield closed at 1.99%. We view resistance at 2.05% and support at 1.8%.
In conclusion, we are encouraged by the last two trading sessions that saw massive gains from their Thursday significant gap down levels. We suspect new higher trading ranges have been established while volatility may likely continue.
SPX: 4,286/4,394 DJI: 33,214/34,00000 COMPQX: 13,149/13,693 NDX: 13,605/14,234
DJT: 14,636/15,303 MID: 2,590/2,667 RTY: 1,990/2,090 VALUA: 9,108/9,483