Indexes Drop, But Support Levels Hold

2022.09.30 11:15

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All the major equity indexes closed lower Thursday with negative and internals as both saw trading volumes climb from the prior session. All closed near their midpoints of the session, leaving all the near-term downtrends intact that we continue to believe should be respected until proven otherwise. However, the down day did not result in any violations of support. The data, on the other hand, has turned more encouraging regarding sentiment and the McClellan OB/OS Oscillator levels. We would note, however, the data has been flashing green for several days that resulted only in a one-day bounce that failed to hold gains the following day. As such, while the data is saying “go,” we continue to believe it needs to be supported by more positive chart action before being embraced with a high degree of confidence. We continue to exercise patience regarding new purchases.

On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and Nasdaq.

• Yet, while there were no violations of support on any of the charts, all the indexes remain in near-term bearish trends that have yet to show signs of a probable bullish reversal. We will respect the trends until a change in opinion is warranted by market action.
• Cumulative market breadth continued to dig a deeper hole with the advance/decline lines for the All Exchange, NYSE and Nasdaq negative and below their 50 DMAs.
• The stochastic levels that have been oversold over the past several days have yet to trigger “bullish crossover” signals.

The data, however, is doing its best to offer some encouragement.

• The McClellan OB/OS Oscillators moved deeper into oversold territory with the NYSE very oversold (All Exchange: -90.08 NYSE: -110.36 Nasdaq: -77.32).
• The percentage of issues trading above their 50 DMAs (contrarian indicator) slipped to 5% and is still on a very bullish signal.
• The Open Insider Buy/Sell Ratio lifted to 108.3. While it remains neutral, it has shown a consistent rise in insider buying over the past several days.
• The detrended Rydex Ratio (contrarian indicator page 8) dropped notably further into very bullish territory at -3.59. It remains at a level that has only been exceeded 5 times in the past 10 years as the ETF traders are now very heavily leveraged short.
• This week’s AAII Bear/Bull Ratio (contrarian indicator page 8) rose to 2.59 and is still on a very bullish signal as well with bears outnumbering bulls by more than 2:1.
• The Investors Intelligence Bear/Bull Ratio (contrary indicator page 8) was 31.4/30.0, turning bullish.
• The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped further to $230.38. As such, its forward p/e is 15.8 and at a slight discount to the “rule of 20” ballpark fair value of 16.3.
• The SPX forward earnings yield rose to 6.33%.
• The closed higher at 3.75%. In our opinion, support is at 3.5% with resistance at 4.0%.

In conclusion, while the data dashboard is on very green signals, we do not feel they are actionable until the charts begin to show some signs that demand is overpowering supply. More patience is required, in our view.

SPX: 3,641/3,756
: 28,451/30,068
COMPQX: 10,525/11,035
NDX: 11,102/11,740
DJT: 11,774/12,670
MID: 2,201/2,289
RTY: 1,654/1,702
VALUA: 7,702/8,000

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