Market Indexes See Multiple Bullish Technical Events

Virtually every major equity index saw some positive technical event registered Friday as all are now in near-term uptrends. However, the data find all the McClellan OB/OS Oscillators very overbought and suggesting some pause/ consolidation of the recent rally gains, while the gap between the forward 12-month P/E for the S&P 500 has expanded its premium.

We continue to think that weakness should be bought near support levels. 

Indexes See Multiple Bullish Technical Events

Source: Worden

On the charts, the major equity indexes closed higher Friday with positive internals on lighter volume. All closed near their intraday highs as all saw some form of bullish technical event being registered.

The S&P 500 closed above its 50-day moving average (see above) while the DJIA closed above resistance as well as its 200-day moving average.

Both the Nasdaq Composite and Nasdaq 100 closed above their uptrend lines and are now positive versus their prior neutral status.

The Dow Jones Transports, MidCap 400, Russell 2000 and Value Line Arithmetic Index all closed above resistance as well.

So, all the charts are in near-term uptrends.

Cumulative market breadth also improved as the Nasdaq cumulative advance/decline line turned positive, joining the All Exchange and NYSE in that condition.

The Nasdaq Composite and Nasdaq 100 did register bearish stochastic crossovers, however.

McClellan OB/OS Oscillators Very Overbought & Still Imply Consolidation

The data find the McClellan OB/OS Oscillators all very overbought and, in our opinion, suggesting some near-term headwinds (All Exchange: +114.38 NYSE: +135.75 Nasdaq: +101.76).

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 62%, staying neutral.

The Open Insider Buy/Sell Ratio dropped to 40.8, also staying neutral.

The detrended Rydex Ratio, (contrarian indicator) rose to -1.58 as leveraged short-sellers did some further covering, but continued its bullish signal.

Last week’s AAII Bear/Bull Ratio (contrarian indicator) dipped to 2.49 but remains near a level of bearish sentiment only surpassed twice in the past two decades, those times being during the banking crisis in 2009 and the Covid pandemic in 2020.

Also, last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator) was 40.3/31.3 and remains bullish.

Valuation Gap Widens

The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 took another drop to $227.78 per share. As such, the S&P’s forward P/E rose to 17.1x and is at a premium to the “rule of 20” ballpark fair value of 16.0x.

The S&P’s forward earnings yield is 5.84%.

The 10-Year Treasury yield closed higher at 4.01%. We continue to view support as 3.85% with resistance at 4.43%.

Market Outlook 

Friday’s positive action strengthened the overall outlook for the equity markets. However, in our opinion, the McClellan OB/OS and widened gap in valuation suggest to us some consolidation of recent gains would not be unlikely. We remain buyers on weakness near support.

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