Most Indexes Hold Support But Remain Bearish, Data Indicates Possible Bounce
2022.09.27 16:08
All the major equity indexes closed lower Monday with negative and internals as both saw trading volumes decline from the previous session.
However, in contrast to the past several sessions, all but one managed to hold their support levels. Nonetheless, they all remain in near-term negative trends that have yet to present signs of reversal. On the other hand, the data that has been strongly suggesting some pause /bounce from recent market weakness over the past few sessions has increased its bullish signals to even more significant levels, as noted below.
The futures are indicating a strong open that may finally put the data into action. However, with that said, we believe that the charts need to see violations of resistance as well as downtrends to draw the assumption that the market correction has been completed. So, while some rays of hope are starting to appear, some degree of caution is still advisable until more positive evidence appears, in our opinion.
On the charts, all the major equity indexes closed lower yesterday, with negative internals on both exchanges as market weakness persisted.
- However, while all closed in the red, only the VALUA closed below its support level as the rest managed to hold, in contrast to all supports failing over the past several sessions. Yet, all remain in near-term bearish trends that have yet to show implications that selling pressure has been exhausted.
- Cumulative market breadth continued to deteriorate and is negative for the All Exchange, NYSE, and NASDAQ.
- The stochastic readings remain deeply oversold on each index chart but have not yet been able to generate bullish crossover signals.
The data has moved to levels strongly suggesting a pause/bounce from the downdraft has become more probable.
- The McClellan OB/OS Oscillators deepened and are at their most oversold levels in the past two years (All Exchange: -165.23 NYSE: -193.02 NASDAQ: -146.27).
- The % of issues trading above their 50 DMAs (contrarian indicator) dropped to 3% and is on a very bullish signal that displays the lack of a place to hide in equities.
- The Open Insider Buy/Sell Ratio lifted to 77% as insiders did some buying but remains neutral.
- The detrended Rydex Ratio (contrarian indicator) is deep in bullish territory at -2.93. It remains at a level that has only been exceeded five times in the past ten years as the typically wrong leveraged ETF traders are extremely leveraged short.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) 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) was 31.4/30.0, turning bullish.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped to $230.94. As such, its forward dropped to 15.8 and at a slight discount to the “rule of 20” ballpark fair value of 16.1.
- The SPX forward earnings yield is 6.32%.
- The closed higher at 3.89%. We view support at 3.23% with resistance at 4.0%.
In conclusion, the data is sending strong signals of relief. Should the indexes manage to hold onto their strong open gains, more relief may be on the way. Yet, we need breaks above resistance to be more confident.
