All Index Charts In Near-Term Neutral Trends

Crowd Still At Historically High Levels of Fear

All the major equity indexes closed higher Thursday with positive Nasdaq internals, while the NYSE had positive breadth but negative up/down volume. All closed near their highs of the session. While there were no resistance violations, two more of the indexes closed above their near-term downtrend lines that now find all the index charts near-term neutral. More stochastic bullish crossovers were registered as well.

The data finds the McClellan OB/OS Oscillators neutral. However, investor sentiment (contrarian indicator) still finds the crowd quite fearful and near record levels, offering a potential market boost. So, as the SPX forward 12-month P/E is still trading at a discount to ballpark fair value, we are a bit more encouraged but need to see resistance violations to become more confident regarding further progress.

On the charts, all the indexes closed lower yesterday with generally positive internals.

• All closed near their highs of the session as buying remained strong into the close.
• The and managed to close above their near-term downtrend lines, turning said trends to neutral from bearish as are the rest of the indexes.
• Cumulative breadth remains neutral for the All Exchange, NYSE and Nasdaq although showing some improvement.
• The , , and RTY registered bullish stochastic crossovers as did the and in the previous session. They add a little positive weight to the scale, in our opinion.

Regarding the data, the McClellan OB/OS Oscillators are still neutral (All Exchange: +19.95 NYSE: +0.07 Nasdaq: +36.79).

• The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 9% and still well below the 25% trigger line, remaining bullish.
• The Open Insider Buy/Sell Ratio dipped to 81.6 as insiders backed off somewhat from their recent buying, staying neutral.
• On the other hand, the detrended Rydex Ratio remains very bullish -2.31 as the leveraged ETF traders continue to be highly leveraged short and represent pent up demand.
• This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.97 (page 8) as the crowd remains fearful.
• The Investors Intelligence Bear/Bull Ratio also remains on a very bullish signal and still near a decade peak of fear at 42.7/29.4. Such extreme levels of investor fear have typically presaged notable market rallies.
• The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $236.37. As such, the SPX forward multiple is 16.1 and at a discount to the “rule of 20” finding ballpark fair value at 16.9.
• The SPX forward earnings yield is 6.23%.
• The closed lower at 3.07%. We view support as 3.0% and new resistance at 3.51%.

In conclusion, yesterday saw some continuation of recent strength that has yielded some signs of encouragement on the charts while sentiment remains extremely fearful and the SPX trading at a discount to ballpark fair value. As such, some clouds are lifting but, in our view, violations of resistance on the charts are still needed for strength to continue.