Data Generally Neutral Except For Crowd Sentiment
All the major equity indexes closed higher yesterday with positive internals on the and as NYSE volumes dipped and NASDAQ volumes rose from the prior session. All closed at or near their intraday highs except for the DJT at its midpoint. However, the rally left the current chart resistance levels intact. That, in our opinion, may require more work before being violated to the upside.
Meanwhile, the data is almost entirely neutral except for the AAII Bear/Bull Ratio (contrarian indicator), discussed yesterday, that is near peak levels seen over the past 20 years. We view their fear levels as potential demand for stocks should resistance levels be violated. So, over the near-term, we suspect the indexes will be in a somewhat volatile trading range until said resistance levels can be overcome.
On the charts, all the indexes closed higher yesterday with positive internals as all closed near their highs of the day except the DJT closing at its midpoint. However, the rally was not strong enough to penetrate their respective resistance levels, leaving all in near-term neutral trends and below their 50 DMAs. As we have been surmising, it may take multiple attempts before said resistance levels can be overpowered.
The rally left the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ neutral as well and also below their 50 DMAs. No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS remaining neutral although the NASDAQ’s is approaching overbought levels (All Exchange: +229.93 NYSE: +2.51 NASDAQ: +49.04).
- The % of SPX issues trading above their 50 DMAs rose to 41%, staying neutral.
- The Open Insider Buy/Sell Ratio also dipped to 37.8 and also neutral.
- The detrended Rydex Ratio (contrarian indicator) saw a fractional lift -0.01 but remains neutral as well.
- 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. 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 $224.94. As such, the SPX forward multiple is now 19.9 with the “rule of 20” finding ballpark fair value at 18.0.
- The SPX forward earnings yield stands at 5.03%.
- The closed at 2.05% and at what we view as resistance. We see support at 1.8%
In conclusion, yesterday’s rally was encouraging. However, it was not strong enough to lift the indexes above resistance that may require more work before being violated. However, the magnitude of bearish sentiment is significant and may well convert into demand once said resistance levels are overcome.
: 4,357/4,500 : 34,350/35,267 COMPQX: 13,622/14,203 : 14,151/14,778
: 14,078/15,492 : 2,628/2,740 : 1,990/2,140 VALUA: 9,385/9,657
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