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
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 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%.
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.