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Market Data Are at Multiple Bullish Levels

Selling pressure continues to hold the stronger hand.

All the major equity indexes closed below their respective support levels and at the midpoint of their intraday ranges Friday, leaving all in near-term bearish patterns that continue to lack signs of potential reversals.

On the other hand, the data that was generally bullish last week has intensified further on multiple fronts. Indeed, the McClellan 1-Day OB/OS Oscillators the most oversold in two years (see below).

Still, it is our belief that the charts need to show some signs of repair and stabilization, suggesting selling pressure has been exhausted, before acting on the data signals. 

More patience is required.

Support Levels Violated as Downtrends Persist

All the major equity indexes closed lower Friday with negative internals as each index violated support once again.

All closed near the midpoints of their intraday ranges as all remain in near-term negative trends that have yet to show signs that recent selling pressure has been exhausted.

Cumulative market breadth continued to erode as well, leaving the All Exchange, NYSE and Nasdaq advance /decline lines negative and below their 50-day moving averages.

The stochastics are very oversold and in the low single digits but have yet to generate bullish crossover signals.

Data at Multiple Bullish Levels

The data that suggested some pause or possible bounce last week has intensified even further. However, as we have noted, we believe some chart repair is necessary to find the data actionable.

The McClellan Overbought/Oversold Oscillators are at their most oversold levels in the past two years (All Exchange: -154.39 NYSE: -173.08 Nasdaq: -141.59).

The All-Exchange McClellan ratio adjusted 1-day OB/OS Oscillator is -154.39 (Very Bullish) and 21 day -127.31 (Very Bullish)

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 4% and are on a very bullish signal that displays the lack of a place to hide in equities.

The Open Insider Buy/Sell Ratio lifted slightly to 68.2% but remains neutral.

The detrended Rydex Ratio (contrarian indicator) moved deeper into very bullish territory at -2.93. It remains at a level that has only been exceeded five times in the past 10 years as the typically wrong leveraged ETF traders have extremely leveraged short exposure.

Last week’s AAII Bear/Bull Ratio (contrarian indicator) rose to 2.27 and is still on a very bullish signal as well, with bears outnumbering bulls by more than 2 to 1.

The Investors Intelligence Bear/Bull Ratio (contrary indicator) was 28.2/32.4 and neutral.

S&P 500 at a Slight Discount

The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped to $231.09 per share. As such, its forward P/E multiple is 16.0x and at a slight discount to the “rule of 20” ballpark fair value of 16.3x.

The S&P’s forward earnings yield is 6.26%.

The 10-Year Treasury yield closed lower at 3.7%. We view support at 3.23% with resistance at 4.0%.

Our Near-Term Market Outlook

While the data still suggest some pause/relief from recent weakness, the charts have yet to show any signs that would encourage a high degree of confidence in following these data signals. More patience is required, in our opinion, before taking long action.

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