Charts And Data Suggest More Consolidation Ahead

Forward 12 Month SPX Earnings Estimates Lift

The major equity indexes closed mostly higher Friday except for the DJT taking a 4.74% hit. All but the DJT closed near their intraday highs as the and saw positive breadth with the NASDAQ having negative up/down volume. The session ended with all the index charts in near-term neutral patterns while several saw bearish stochastic crossover signals generated.

The data finds most of the McClellan OB/OS Oscillators back in overbought territory. However, their overbought conditions may be somewhat counterbalanced given a nice rise in forward 12-month consensus earnings estimates for the SPX via Bloomberg, while the broadly negative investor sentiment remains encouraging, in our opinion. As such, we suspect some further consolidation of the recent rally is likely to occur for the near-term.

On the charts, all but the DJT closed higher Friday with generally positive internals as trading volumes declined on both exchanges. All closed near their highs of the day except for the DJT that closed near its low as it violated its near-term uptrend and support. The DJT’s action shifted its near-term trend to neutral from positive, joining the rest of the charts in that condition.

Cumulative market breadths saw some improvement with the All Exchange, NYSE and NASDAQ neutral as both the All Exchange and NYSE reclaimed their 50 DMAs. However, cautionary bearish stochastic crossover signals were generated on the SPX, DJI, COMPQX, NDX, and VALUA.

The data now finds the McClellan 1-Day OB/OS back in overbought territory for the All Exchange and NYSE with the NASDAQ’s remaining neutral (All Exchange:  +53.42 NYSE: +68.05 NASDAQ: +44.38).

  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) was unchanged at 62% and remains neutral.
  • The Open Insider Buy/Sell Ratio declined to 47.9, also staying neutral.
  • The detrended Rydex Ratio (contrarian indicator) rose to +0.48 and is neutral versus its prior bullish implications near the market lows.
  • Last week’s AAII Bear/Bull Ratio (contrarian indicator), while dipping, remained bullish at 1.65 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) was at 35.31/36.3, 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 such as the one recently achieved.
  • The valuation gap narrowed with the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting to $233.82 from $228.42. As such, the SPX forward multiple stands at 19.4 with the “rule of 20” finding ballpark fair value at 17.6.
  • The SPX forward earnings yield is now 5.14%.
  • The closed higher at 2.38. We view resistance as 2.64% while support remains at 2.0%.

In conclusion, the cautionary OB/OS levels and stochastic signals are, in our view, somewhat counterbalanced by the uptick in earnings estimates and continued bearish crowd sentiment. Their combination suggests more near-term consolidation the higher probability before further progress can be made.

: 4,516/4,659  : 34,697/35,518 COMPQX: 14,202/14,938 : 14,642/15,358                         

: 15,955/16,240  : 2,685/2,792  : 2,050/2,090  VALUA: 9,551/9,922

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