Resistance Levels Stall Rally |

McClellan 1-Day OB/OS Oscillators Moderate

All the major equity indexes closed lower Thursday with negative internals on the and as trading volumes rose from those from the prior positive session. All closed at or near their lows of the day. As we had suspected, given the state of the charts and data, the indexes were rejected from their high-volume resistance levels we thought would pose a near-term barrier to progress. Importantly, in our opinion, no violations of support or trend were violated, leaving the majority in near-term sideways trends with one staying positive. Cumulative market breadth remained mostly positive as well. Meanwhile, the data has returned to a generally neutral signal as two of three McClellan 1-Day OB/OS Oscillators dropped to neutral from their prior overbought conditions. As such, we suspect the markets will remain in a trading range for a while as it works off the high-volume resistance before resuming strength.

On the charts, all the indexes closed lower yesterday with negative internals on heavy volume as all closed at or near their lows of the day.

  • The high-volume resistance levels on the charts that we suspected would be a difficult hurdle over the very near-term were successful in repelling further progress of the recent rally.
  • Importantly, however, there were no violations of trend or support, leaving all the indexes in near-term neutral trends except the (page 2) that is positive.
  • We now suspect the market may likely bounce back and forth between support and resistance for a bit before the high-volume resistance levels can be overpowered.
  • Cumulative market breadth was unaffected by the market weakness as the cumulative advance/decline lines for the All Exchange and NASDAQ stayed positive with the NYSE neutral.
  • Several stochastic levels are overbought but no bearish crossovers have been registered as yet.

The data finds the McClellan 1-Day OB/OS slipping back to neutral from overbought except for the NASDAQ now mildly overbought (All Exchange: +33.83 NYSE: +4.46 NASDAQ: +54.21).

  • The % of issues trading above their 50 DMAs dipped to 43%, staying neutral.
  • The Open Insider Buy/Sell Ratio (page 9) rose to 43.1 and neutral as insiders did some buying on weakness.
  • The detrended Rydex Ratio (contrarian indicator page 8) lifted to -0.14 but also remains neutral.
  • This week’s contrarian AAII Bear/Bull Ratio (contrarian indicator) saw another rise in bearish sentiment to a very bullish 2.03 and double the number of bears than bulls as a positive as it is near 20-year peak levels of fear.
  • The Investors Intelligence Bear/Bull Ratio (25.0/35.7) (contrary indicator page 9) remains neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX dropping back to 224.87 from its unusual lift earlier in the week. As such the SPX forward multiple is now 20.0 with the “rule of 20” finding ballpark fair value at 18.0.
  • The SPX forward earnings yield stands at 4.99%.
  • The closed at 2.03%. We see resistance around 2.05% with support at 1.8%

In conclusion, yesterday’s weakness was not unexpected and, in our view, suggests some sideways action for the near-term given the state of the charts and data.

SPX: 4,435/4,587

DJI: 35,009/36,128

COMPQX: 13,961/14,524

NDX: 14,469/15,208

: 15,270/15,757

MID: 2,628/2,740 RTY: 1,990/2,140

VALUA: 9,385/9,657

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