Was that it?
While we continue to require validation from the index charts regarding a positive reversal, Thursday's market action combined with the data suggest we may be setting up for a rally that could test the index resistance levels.
All the equity indexes closed above their intraday lows and at mid-to high intraday levels. However, the action was insufficient regarding the ability of any of the charts to violate their resistance levels or near-term downtrends lines as all remain negative.
We would note, however, the Nasdaq 100 (QQQ) made an exact 50% Fibonacci retracement of all its gains from its Covid lows of 2020, which view that as a slight positive.
Meanwhile, the data remain bullish for the most part, particularly concerning the high degree of investor fear. Also, the S&P 500 is now trading at a discount to its ballpark fair value.
On the Charts
The major equity indexes closed mixed Thursday with positive internals and higher volumes on the NYSE and Nasdaq.
After recovering from their intraday lows, the Nasdaq Composite, Dow Jones Transports, MidCap 400, Russell 2000 and Value Line Arithmetic Index posted gains with the rest having minor losses.
In particular, the Nasdaq 100 (see above) made a 50% retracement of its gains from its 2020 Covid lows that may prove to be a bounce point via standard technical analysis theory.
Yet, all indexes remain in near-term down trends that have yet to see signs of a positive change.
Cumulative market breadth remains negative and below the 50-day moving averages for the All Exchange, NYSE and Nasdaq.
Stochastic levels remain oversold but still lacking bullish crossover signals.
Market Data Continue to Send Very Bullish Signals
The data continue to send very bullish signals with investor sentiment (contrarian indicators) remaining at historically high levels of bearish expectations.
The McClellan 1-Day Overbought/Oversold oscillators remain oversold (All Exchange: -78.17 NYSE: -80.84 Nasdaq: -75.22).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is 16% and on a bullish signal and near its lowest level in two years.
The Open Insider Buy/Sell Ratio lifted to 92.7, remaining neutral.
The most encouraging data factor for the near-term, in our view, remains the sentiment data, below.
The detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.38. Its chart shows only five times in the past decade have the ETF traders been so heavily leveraged short, all of which were followed by rallies.
The detrended Rydex Ratio is -2.38 (very bullish)
What's more, this week's AAII Bear/Bull Ratio (contrarian indicator) is at a very bullish 2.75 and at a 20-year peak matched only by the 2008-2009 financial crisis as investment banks collapsed.
Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear is at very extreme levels.
S&P 500 Valuation Is Now At a Discount
The forward 12-month consensus earnings estimate from Bloomberg for the S&P lifted to $235.68 per share. Thus, the S&P's forward P/E multiple is 16.7x and now at a discount to the "rule of 20" finding ballpark fair value at 17.2.
The S&P's forward earnings yield is 6.0%.
The 10-Year Treasury yield closed lower at 2.82%. We view support as 2.5% and resistance at 3.2%.
For the reasons noted above, the potential for a rally to resistance seems to be increasing.