Wednesday, March 29, 2023

Bounce Leaves Charts Negative |


Psychology Data Sees Some Improvement

The major equity indexes closed higher Thursday with positive internals on the and as trading volumes declined form the prior negative session. All closed at or near their intraday highs, but none were able to violate resistance or trends, leaving all in near-term downtrends. The data remains mixed but the 1-day OB/OS that implied a positive session yesterday morning remain oversold.

As well, we believe we may be starting to see a positive shift in the psychology numbers. Yet, yesterday’s gains did stretch the valuation gap back to overvalued levels that, in our view, need to narrow. So while we are seeing some encouraging signs that suggest some attractive opportunities may be forthcoming, there has not been enough of a shift in the weight of the evidence to alter our current near-term “neutral/negative” outlook for the equity markets. Some patience may be required.

On the charts, all the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ but on lighter volume.

  • While all closed near their intraday highs, the push was unable to bring any of the charts above their respective resistance levels or near-term downtrend lines.
  • As such, all remain in negative trends and below their 50 DMAs.
  • The positive breadth in yesterdays action also left the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ negative and below their 50 DMAs as well.
  • The stochastic readings remain oversold but have yet to send bullish crossover signals.

The data saw some improvements, in our opinion.

  • The 1-day McClellan OB/OS Oscillators that implied a pause/bounce from the recent rout before yesterday’s open remain oversold but not as extreme as yesterday morning (All Exchange: -69.66 NYSE: -81.62 NASDAQ: -61.04).
  • Psychology is starting to show some encouraging signs, in our view.
  • The Open Insider Buy/Sell Ratio (page 9) remains neutral but lifted again to 47.8. They have increased their buying activity throughout the week.
  • In contrast the Rydex Ratio (contrarian indicator) has dropped to a neutral 0.8 as the leveraged ETF traders have lightened up on their leveraged long exposure. Should this dynamic continue, we would view it as a positive transition in sentiment.
  • This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remained bearish at 20.4/59.2.
  • The valuation gap, unfortunately, expanded back to overvalued levels with the SPX forward multiple lifting to 21.2 with consensus forward 12-month earnings estimates from Bloomberg of $156.08 while the “rule of 20” still finds fair value at 19.2. As such, valuation remains a concern.
  • The forward earnings yield is 4.72% with the Treasury yield rose to 0.84%.

In conclusion, while we are of the opinion that the markets may be heading toward some attractive buying opportunities, it is too early to alter our current “neutral/negative” outlook. More positive signals need to be seen before becoming more enthusiastic.

SPX: HVS3,250/HVR3,360

: 26,290//27,557

COMPQX: HVS10,939/11,489

NDX: 11,077//11,495

DJT: 10,954/11,425

MID: 1,883/HVR1,966

RTY: 15948/1,590

VALUA: 6,265/6,5510

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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