• 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
    • Trifecta Stocks
  1. Home
  2. / Markets

Rough Seas as Investor Fear Nears Two-Decade Peak

Despite oversold conditions, here's what is needed for me to be more optimistic.
By GUY ORTMANN
May 09, 2022 | 10:40 AM EDT

Market data finds the McClellan 1-day OB/OS Oscillators back in oversold territory with investor fear near two-decade peak levels. Nonetheless, each notable rally of late that has suggested a positive turning point for the markets has failed.

Violations of resistance on volume that are able to hold their gains for more than one or two sessions, in our view, are needed to feel more sanguine. So, while long-term investors may want to dip their proverbial toes in the water, the markets continue to struggle against a strong headwind.

On the Charts

Source: Worden

All the major equity indexes closed lower Friday with negative internals on higher trading volumes.

The only two charts that were able to sustain themselves above support were the S&P 500 (see above) and DJIA. The rest saw violations.

The end result regarding near-term trends was all are near-term negative except the Dow Jones Transports, which is still neutral.

The session did nothing to help cumulative market breadth for the All Exchange, NYSE and Nasdaq advance/decline lines that are bearish and below their 50-day moving averages.

No stochastic signals were generated.

The Data

The McClellan 1-Day Overbought/Oversold oscillators are back in oversold territory (All Exchange: -86.46 NYSE: -74.01 Nasdaq: -94.0).

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) slipped to 27%, also staying neutral but close to turning positive.

The Open Insider Buy/Sell Ratio is 84%, remaining neutral post their active buying activity over the past several sessions.

Importantly, the most encouraging data factor for the near-term, in our view, remains the detrended Rydex Ratio (contrarian indicator) that is very bullish at -3.19. As its chart below shows, only five times in the past decade have the ETF traders been so heavily leveraged short, all of which were followed by rallies. It is now deeper than the reading that implied last Wednesday's sizable rally.

The detrended Rydex Ratio is -3.19 (very bullish)

Meanwhile, last 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. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is on a bullish signal at 32.9/34.2.

S&P 500 Valuation and Treasury Yields

The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped to $235.57 per share. Thus, the S&P's forward P/E multiple is 17.5x with the "rule of 20" finding ballpark fair value at 16.9x.

The S&P's forward earnings yield is now 5.71%.

The 10-Year Treasury yield closed higher at 3.12%. We view support as 2.5% and new resistance at 3.2%.

Near-Term Outlook

Rough seas persist for the marke While long-term investors may be doing some buying, the 10-Year Treasury continues to put downward pressure on stocks. Chart of improvements are essential, in our opinion, to be more constructive.

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

Have You Noticed This Shift in the Market?

James "Rev Shark" DePorre
May 25, 2022 11:00 AM EDT

Bonds tend to gain strength, and interest rates decline as worries about a recession increase.

Investor Sentiment Remains at Historically High Levels of Fear

Guy Ortmann
May 25, 2022 10:15 AM EDT

Here's where things stand in this volatile stock market.

Snap Judgement, S&P Basing Pattern? Spiraling Macro, Trading Lithium Stocks

Stephen Guilfoyle
May 25, 2022 7:49 AM EDT

A lot of folks haven't even realized that their 401(k)s and IRAs have been 'smashified' -- and that their homes are not worth what they think.

Overnight Blood, Didn't It Matter? Snap's Whammy, Trading Bank Stocks and Zoom

Stephen Guilfoyle
May 24, 2022 7:35 AM EDT

There was the 'momentum play' on Monday and not much else as portfolio managers resisted temptation to increase risk exposure.

Bottom Fishing for Biotech Bargains

Bret Jensen
May 23, 2022 11:45 AM EDT

Here are three names I have added to in May.

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

  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 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