The charts of the major equity indexes continue to show further technical improvements, including violations of resistance, some near-term trends turning bullish from neutral. In our view, the market action continues to imply the recent shift of demand overtaking supply.
Meanwhile, the data dashboard is generally neutral except for investor sentiment readings (contrarian indicators) that show historically high levels of bearish expectations. As such, we reiterate our view that they pose a potential healthy upside catalyst should the markets continue to improve, thus pulling money back into the market.
Charts See More Technical Improvements
Chart Source: Worden
On the charts, all the major equity indexes closed higher Monday with positive NYSE and Nasdaq internals.
As the indexes closed near their intraday highs, improvements were seen on the charts as the S&P 500, DJIA, Nasdaq 100 (see above) and Dow Jones Transports all closed above resistance.
As well, the near-term trends for the Nasdaq 100 and Dow Transports shifted to bullish from neutral, joining the S&P 500 and DJIA in that status. The rest are still neutral.
We would also add the DJIA managed to close back above its 50-day moving average and is the first to do so.
Cumulative market breadth was unchanged and neutral on the All Exchange NYSE and Nasdaq.
The stochastic reading for the DJI is overbought but no bearish crossover signals have been generated.
Data Mostly Neutral Except for Very Bullish Sentiment Signals
The data find the McClellan Overbought/Oversold Oscillators still neutral (All Exchange: +44.10 NYSE: +47.81 Nasdaq: +42.81).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 34%, staying neutral.
The Open Insider Buy/Sell Ratio dropped to 41.7, also staying neutral.
The detrended Rydex Ratio, (contrarian indicator), continues its extremely bullish signal as it rose to -3.33. We reiterate that the ETF traders continue to have historically leveraged short exposure, coincident with market lows and create the probability of becoming a bullish catalyst when they are forced to cover, in our opinion.
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 2.49 but remains near 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 2.49 (very bullish)
Also, this week's Investors Intelligence Bear/Bull Ratio (contrary indicator) was 40.3/31.3 and remains bullish.
Earnings Estimates Increase
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 finally saw an uptick to $229.62 per share. It had been steadily declining over the past several sessions. As such, the S&P's forward P/E multiple is 16.5x and at a premium to the "rule of 20" ballpark fair value of 15.8x.
The S&P's forward earnings yield is 6.05%.
The 10-Year Treasury yield closed higher at 4.23%. We view support as at 3.85% with resistance at 4.43%.
Near-Term Market Outlook
We remain of the opinion that the recent improvement in the supply/demand dynamic for equities combined with historically high levels of investor fear suggest weakness should be bought.
