Data Still Neutral Except For High Bearish Sentiment

The major equity indexes closed lower Monday with negative internals on the and as trading volumes rose from the prior session. All closed near their lows of the day with four of the index charts closing below support as selling pressure continued. Regarding trends, now only the DJT remains neutral while the remainder are in near-term downtrends.

The data continues to send a generally neutral message except for investor sentiment levels that remain near historic highs of bearish outlook that have historically been associated with market bottoms. Nonetheless, while the sentiment data is flashing green, the charts and market breadth have continued to deteriorate with no signals suggesting an abatement of downside pressure is imminent. Violations of resistance and trends to a more improved state as well as market breadth are required, in our opinion, to become more constructive.

On the charts, all the major indexes closed lower with negative internals on heavier trading volume. All closed at or near their intraday lows as the COMPQX, NDX, RTY, and VALUA violated support with the COMPQX and NDX making lower intraday lows versus the 2/24 selloff. Only the DJT is neutral and still possibly forming a bullish “inverted head and shoulders” pattern as noted on its chart.

Market breadth weakened further with the All Exchange, NYSE and NASDAQ cumulative advance/decline lines making lower lows and in negative trends. No stochastic signals were generated.

The data continues to send generally neutral signals except for investor sentiment.

  • The McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -46.16 NYSE: -47.94 NASDAQ: -45.09).
  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) lifted slightly to 24% and is at levels coincident with market lows over the past two years.
  • The Open Insider Buy/Sell Ratio is neutral and unchanged at 45.2.
  • The detrended Rydex Ratio (contrarian indicator) is flashing green at 20.3 with these typically wrong traders remaining leveraged short.
  • Last week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.89 versus its prior 1.98 while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) is 110.16 and near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was followed by a notable rally. However, it has been as high as 140.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting again to $227.91. As such, the SPX forward multiple dropped to 18.3 with the “rule of 20” finding ballpark fair value around 17.9.
  • The SPX forward earnings yield 5.46%.
  • The closed at 2.14 and well above resistance. We view new resistance as 2.05%. However, as that is only one basis point away from its current level, should it be violated, the next level would be 2.4%, in our opinion. Support remains at 1.87%.

In conclusion, as the sentiment data remains very encouraging, the charts and other data have yet to suggest said sentiment data is actionable.