Strong Day Improves All Charts; Period Of Gains Consolidation Expected

McClellan 1-Day OB/OS Oscillators Neutral As Bearish Sentiment Remains High

All the major equity indexes closed higher yesterday with positive internals on the and as both saw heavy trading volume. All closed at or near their highs of the day with every chart seeing some form of technical improvement. We would also note the DJT completed its “inverted head & shoulders” pattern we have discussed lately.

The data remains generally neutral, including the 1-day McClellan OB/OS Oscillators while investor sentiment continues to show a high level of fear exists. As such, the chart improvements and data suggest a higher probability the markets have seen the worst of their damage over the near term. However, some backing and filling would not be surprising given the magnitude of yesterday’s gains.

On the charts, all the major equity indexes closed higher yesterday with strong breadth on heavy trading volume. Buying was strong enough to leave all at or near their highs of the day at the close. Every chart saw some form of technical improvement. The only index unable to close above resistance was the COMPQX.

However, it did close above its near-term downtrend line as did the NDX, MID, and VALUA. We would also note the DJT completed its “inverted head & shoulders” pattern by closing above its neckline with a sizable 5.51% gain on the day. So, the trends are now positive on the DJT, negative on the RTY and neutral on the rest.

Breadth was quite strong, but the cumulative advance decline lines for the All Exchange, NYSE and NASDAQ fell just shy of closing above their downtrend lines. The COMPOQX and NDX saw bullish stochastic crossover signals generated.

The data continues to send generally neutral signals except for investor sentiment.

  • The McClellan 1-Day OB/OS oscillators are higher but remain neutral (All Exchange: +41.18 NYSE: +41.18 NASDAQ: +43.52).
  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 39% turning neutral from positive.
  • The Open Insider Buy/Sell Ratio rose to 57.9.
  • The detrended Rydex Ratio (contrarian indicator) dipped to -1.31 but remains bullish as the leveraged ETF traders remain leveraged short.
  • This week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.81 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) is 110.16 and near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was followed by a notable rally.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX dipping slightly to $227.89. As such, the SPX forward multiple 19.1 with the “rule of 20” finding ballpark fair value around 17.8.
  • The SPX forward earnings yield 5.23%.
  • The closed at 2.19. We view resistance as 2.4%. Support remains at 1.87%.

In conclusion, yesterday’s strong performance had some healing effect on the charts while the data still implies some further upside potential. However, we would not be surprised to go thorough a period of consolidation of gains over the very near term.

: 4,246/4,367 : 33,365/34,071 COMPQX: 12,337/12,976 : 13,461/14,063

: 15,587/16,479 : 2,598/2,664 : 1,950/2,050 VALUA: 9,099/9,388

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