Indexes Lift But Trends Unchanged; Sentiment Data Sending Strong Bullish Signal

Indexes Lift But Trends Unchanged

Sentiment Data Sending Even Stronger Bullish Signals

All the major equity indexes closed higher Tuesday with positive internals on the and as trading volumes dipped on both from the prior session. All closed near the midpoints of their intraday ranges. Yet the gains were still insufficient to alter the current near-term downtrends on all the charts except for the that remains neutral.

However, we noted yesterday the positive signals coming from the investor sentiment data that has now intensified its potentially bullish implications as detailed below. As such, while the charts have yet to return to the sunlight, the sentiment data, in our opinion, is suggesting an important market reversal may be at hand over the near-term. In fact, said data has historically seen some significant progress associated with the current levels. As such, our “nibbling” comment from yesterday remains in place.

On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ on lower trade volume.

  • However, the progress left all the indexes in near-term downtrends except for the DJT that remains neutral.
  • And while breadth was positive, it was unable to change the current downtrends of the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ as well.
  • Stochastic levels remain oversold but still lack bullish crossover signals.
  • Thus, the charts continue to lack reversal signals.

However, the data, in our opinion, has intensified its implications for some potential market strength, especially regarding sentiment.

  • The McClellan 1-Day OB/OS oscillators moved back to neutral from their previous oversold conditions (All Exchange: -24.42 NYSE: -33.13 NASDAQ: -17.83).
  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) lifted to 29% from 24%, shifting its signal to neutral from bullish.
  • However, of import, the Open Insider Buy/Sell Ratio rose further to 106.2% as insiders have actively increased their buying appetite over the past several sessions.
  • We find this compelling as the detrended Rydex Ratio (contrarian indicator page 8) is now a very bullish -2.5 with the ETF traders highly leveraged short.
  • We repeat, the insider/Rydex dynamic at these levels has frequently resulted in powerful market rallies.
  • Also, this week’s AAII Bear/Bull Ratio (contrarian indicator) rose further to a very bullish 2.97 and at a 20-year peak matched only by the 2008-2009 financial crisis. Crowd fear is at very extreme levels.
  • As well, the Investors Intelligence Bear/Bull Ratio is on a bullish signal at 32.9/34.2.
  • The forward 12-month consensus earnings estimate from Bloomberg for the slipped to $236.00. Thus, the SPX forward multiple is 17.7 with the “rule of 20” finding ballpark fair value at 17.0.
  • The SPX forward earnings yield is now 5.65%.
  • The closed lower at 2.96% and at resistance. We view support as 2.5%.

In conclusion, although the charts have yet to confirm we are out of the correction woods, sentiment data is leaning very heavily in that direction. Some buying at current levels could prove beneficial.

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