• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Markets

Back in the Saddle? It Depends on What You're Looking At

Several contrarian indicators are at historically high levels of bearish expectations, but other charts may tell a different story.
By GUY ORTMANN
May 10, 2022 | 10:49 AM EDT

All the major equity indexes closed broke below their respective support levels on Monday. Indeed all their near-term trends were bearish as of the close.

Yet, while the charts look awful, several of the data levels are sending very strong positive signals suggestive of upside relief. including the OB/OS oscillators and historically significant investor sentiment fear levels.

However, while the data is flashing some bright green lights, the charts have yet to reverse their negative trends. Closes above resistance and downtrends are necessary, in our opinion, to act on the data signals.

The strong trading Tuesday morning need to hold through the day with some degree of follow through.

All Indexes Break Support Again

Source: Worden

On the charts, all the major equity indexes closed lower Monday with breath and up/down volumes highly skewed to the negative as all closed below support.

All the downtrend lines remain intact with the Dow Jones Transports (see above) now joining the rest of the charts.

Market breadth continued to sink as well with the cumulative advance/decline lines remaining negative and below their 50-day moving averages for the All Exchange, NYSE and Nasdaq as they made lower lows.

Stochastic levels are oversold buy lack bullish crossover signals.

Data Flashing Some Very Bullish Signals

The McClellan 1-Day Overbought/Oversold oscillators are nicely oversold and suggesting a bounce (All Exchange: - 93.71 NYSE: -98.71 Nasdaq: -90.04).

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 20% and is now on a bullish signal.

The Open Insider Buy/Sell Ratio dipped to 80.2%, remaining neutral. However, they have been relatively active buyers over the past several sessions.

The most encouraging data factor for the near-term, in our view, remains the investor sentiment data (contrarian indicators), which are at historically high levels of bearish expectations.

The detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.75. As 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 -2.75 (very bullish)

Meanwhile, 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 and Treasury Bond Yields

The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 lifted to $235.63 per share. Thus, the S&P's forward P/E multiple is 16.9x and now in line with the "rule of 20" finding ballpark fair value at 16.9x.

The S&P's forward earnings yield is 5.9%.

The 10-Year Treasury yield closed lower at 3.08%. We view support as 2.5% and new resistance at 3.2%.

My Near-Term Outlook

The data says it's time to get back on the horse, especially for long-term investors. However, the lack of validation from the charts has yet to say it's safe to go back in the water for the shorter term. Breadth and chart improvement are essential to give the data more credibility regarding their implications.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Ortmann had no positions in any securities mentioned.

TAGS: Indexes | Markets | Technical Analysis | Treasury Bonds | U.S. Equity

More from Markets

Here's Why Stock Buying Should Be Very Selective Right Now

Guy Ortmann
Mar 31, 2023 9:47 AM EDT

The near-term trend of the Dow Industrials has turned positive.

I Trust This Silver Trust as the 'Poor Man's Gold' Starts Shining Again

Jonathan Heller
Mar 31, 2023 9:30 AM EDT

The closed-end Sprott Physical Silver Trust is one way to gain exposure to the silver market.

I'm Adding to These 6 Stocks as Bulls Squeeze Bears

James "Rev Shark" DePorre
Mar 30, 2023 11:34 AM EDT

While I'm not interested in chasing entries, I see strong support in some of small-cap value plays.

Intel Stock Is Finally in a Good Place, But the Economy Remains a Question Mark

Stephen Guilfoyle
Mar 30, 2023 10:30 AM EDT

I'm long Nvidia and AMD, so let's compare.

Market Rally Pushes Several Indexes Above Resistance

Guy Ortmann
Mar 30, 2023 9:30 AM EDT

Here's how we'd play things right now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:21 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How a Trader Becomes a Money Manager
  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login