Strong Signals Of A Notable Rally May Be On The Threshold

Data Strongly Suggests Near-Term Market Strength

The major equity indexes closed lower Tuesday with negative internals on the and as volumes dropped from Monday’s heavy trade. All closed near the midpoints of their intraday ranges with two indexes violating support. As such, the index near-term downtrends remined intact.

Yet multiple bullish stochastic crossovers were registered suggesting some upside. As well, the data is bright green across the board, at levels seen infrequently, suggesting a notable rally is likely forthcoming. In our opinion, we now believe rallies on the indexes to their respective resistance levels, that are sizably above current levels, are quite likely.

On the charts, all the major equity indexes closed lower yesterday with negative NYSE and NASDAQ internals on lower volume. Early losses that reversed midsession were not sustained as all closed near their intraday midpoints. The COMPQX and NDX closed below support and are still in near-term downtrends as are the rest.

Market cumulative breadth remains weak and negative on the All Exchange, NYSE and NASDAQ. However, a ray of sunshine is coming from the bullish stochastic crossovers registered on the SPX, DJI, MID, and VALUA as they suggest some near-term strength.

What may be of greater import are the data that are sending strong signals that a notable rally may be on the threshold.

  • The McClellan 1-Day OB/OS Oscillators remain deeply oversold with plenty of fuel in the tank to support more upside (All Exchange: -99.97 NYSE: -111.77 NASDAQ: -93.58).
  • The % of SPX issues trading above their 50 DMAs dipped to 32% and still at levels coincident with correction lows.
  • The Open Insider Buy/Sell Ratio jumped further to 96.5, surpassing yesterday’s 82.8 that was the most aggressive buying on their part since May 2020.
  • The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dropped further to 0.22 as they abandon ship from their leveraged long exposure.
  • This week’s contrarian AAII Bear/Bull Ratio jumped to a very bullish 1.53 while the Investors Intelligence Bear/Bull Ratio (25.0/39.8) (contrary indicator) saw the number of bulls dropped notably.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $221.49 for the SPX. As such, the SPX forward multiple remains below 20 at 19.7 with the “rule of 20” finding ballpark fair value at 18.1.
  • The SPX forward earnings yield stayed above 5% at 5.1%.
  • The rose to 1.78%. We view support for the 10-Year at 1.60% with resistance at 1.93%.

In conclusion, while yesterday’s performance was lackluster, Monday’s rally combined with the data dashboard that is flashing bright green suggest a notable rally to resistance levels has become likely.

: 4,398/4,535 : 34,013/35,072 COMPQX: 13,544/14,500 : 14,054/15,195

: 14,896 / 15,608: 2,569 / 2,688: 1,669 / 2,140 CURRENCY: 9,181 / 9,384

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