Charts Weaken On Broadly Negative Day

Data Remains Generally Neutral Except For Bullish Sentiment Readings

All the major equity indexes closed lower yesterday with negative internals on the and as trading volumes rose on both from the prior session. All closed at or near their intraday lows with some violations of support and 50 DMAs. As such, the chart trends remain a mix of bullish, bearish, and neutral near-term trends, in our opinion. Cumulative market breadth weakened as well. However, the data dashboard remains mostly neutral except for the contrarian investor sentiment readings that show a historically low level of bullish sentiment that, should the markets start to improve, could be a strong upside catalyst, as has frequently been the case over the years. So, in our view, yesterday’s negative action was not at a level that would cause a change in our opinion that the major equity indexes have completed their correction from the March rally with the caveat that some stabilization is now necessary.

On the charts, the major equity indexes closed lower yesterday with negative e internals on higher trading volume.

  • Selling pressure persisted into the close, leaving all at or near their intraday lows.
  • Negative technical events were seen on the COMPQX, NDX, and VALUA as they closed below their support levels.
  • Also, the , , and VALUA closed below their 50 DMAs.
  • Regarding trends, the COMPQX and NDX are now near-term negatives, the DJI positive, with the rest staying neutral.
  • Market breadth weakened on the All Exchange, turning negative as is the NASDAQ’s. The NYSE A/D remains neutral.
  • No stochastic signals were generated, although the COMPQX and NDX remain oversold.

The data remains largely neutral except for the investor sentiment data that shows a very high level of fear within the crowd.

  • The McClellan 1-Day OB/OS oscillators dropped but remain neutral (All Exchange: -30.42 NYSE: -24.01 NASDAQ: -33.52).
  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) slipped to 57%, remaining neutral.
  • The Open Insider Buy/Sell Ratio dropped slightly to 50.6, also staying neutral.
  • The detrended Rydex Ratio (contrarian indicator page 8) rose to -0.68 and is now mildly bullish as the ETF traders are somewhat leveraged short.
  • We remain focused on this week’s AAII Bear/Bull Ratio (contrarian indicator) that rose to a very bullish 1.62 as crowd fears intensified.
  • According to, bullish sentiment is at a 30-year low on that survey. Meanwhile, the Investors Intelligence Bear/Bull Ratio was 32.1/35.8, remaining bullish. Such high levels of fear have frequently been upside catalysts over the years once the markets start to improve.
  • The forward 12-month consensus earnings estimate from Bloomberg for the SPX rose to $236.19. Thus, the SPX forward multiple stands at 18.6, with the “rule of 20” finding a ballpark fair value at 17.1.
  • The SPX forward earnings yield is now 5.38%.
  • The closed higher at 2.93. We view resistance as 3.0%. Support is 2.5%.

In conclusion, yesterday’s declines, while disturbing, did not present enough evidence by our methodology to change our opinion that the correction from the March highs has likely been completed. Some stabilization, however, needs to be forthcoming for our assumption to remain intact.

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