All the major equity indexes are in near-term bearish trends.
However, investor sentiment, which is a contrarian indicator, is near a 20-year peak in bearish opinions (see below). We are still hesitant to "go," though.
Why?
We are not confident that this will put enough upward pressure on prices to result in some positive signals coming from the charts.
Chart signals are necessary, in our view, to become active on the buy side. Until that occurs, we believe the current downtrends should be respected.
Downtrends Persist with More Support Breaks
Source: Worden
On the charts, all the major equity indexes closed lower Monday with negative internals on the NYSE and Nasdaq on lower trading volume.
All closed near their midpoints of the day's ranges with the DJIA (see above), Nasdaq Composite, Nasdaq 100 and Russell 2000 all closing below support.
As such, all the charts remain in near-term bearish trends that, in our opinion, should be respected until evidence appears to suggest otherwise.
Market cumulative breadth continued south for the All Exchange, NYSE and Nasdaq with all negative and below their 50-day moving averages.
All the stochastic levels are neutral and lack strong implications in either direction for the markets.
Crowd Sentiment Near 20 Year Peak in Bearish Opinions
The data find the McClellan Overbought/Oversold Oscillators are oversold on the All Exchange and NYSE with the Nasdaq neutral (All Exchange: -52.37 NYSE: -66.33 Nasdaq: -43.93).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) was unchanged at 11% and remains bullish.
The Open Insider Buy/Sell Ratio was unchanged as well at 57.0 and neutral.
The detrended Rydex Ratio, (contrarian indicator), remains on a very bullish signal but rose to -2.8. The ETF traders continue to have extended leveraged short exposure, and in our opinion, will need to cover at some point. We continue to view it as a potentially positive catalyst.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 2.87 and is now at a level of bearish sentiment only surpassed twice in the past two decades, those times being during the banking crisis in 2009 and the COVID pandemic in 2020.
The AAII Bear/Bull Ratio is 2.87 (very bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 41.8/25.4 and also near peak levels.
Forward Earnings Estimates Continue to Shrink
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped down to $232.99 per share. As such, its forward P/E multiple is 15.5x and at a discount to the "rule of 20" ballpark fair value of 16.1x.
The S&P's forward earnings yield is 6.45%.
The 10-Year Treasury yield closed unchanged at 3.88% as the bond market was closed. It is indicating around 3.91% after testing 4% overnight. We view support as at 3.5% with resistance at 4.0%.
Our Market Outlook
Monday was yet another weak session within the current ongoing downtrends that should be respected. While investor sentiment is on a blinding green light and valuation has moderated, forward earnings estimates continue to shrink with no signs of relief from the charts. We remain patient.
