Saturday, January 28, 2023

Data Suggests Market Risk Elevated


The major equity indexes closed mostly higher yesterday with the exception of the NDX posting a fractional loss. Internals were positive on the NYSE and NASDAQ as trading volumes rose on both exchanges form the prior session. Two of the indexes closed at new all-time highs while the indexes remain evenly split between neutral and positive near-term trends. Meanwhile, the data continues to suggest a rather elevated level of risk in the market as the market shock absorbers are weak and vulnerable should some unforeseen negative news hit the tape. As such, we are maintaining our near-term “neutral” outlook for the equity markets at this time.

On the charts, the bulk of the major equity indexes closed higher yesterday with positive internals and strong trading volumes on the and .

  • The charts saw the MID (page 4) and VALUA (page 5) make new all-time closing highs while the DJT closed back above its near-term downtrend line and is now positive as are the MID, RTY (page 5) and VALUA.
  • The rest of the index charts remain neutral, by our work.
  • Market breadth remains positive with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ in uptrends and above their 50 DMAAs.
  • At this point, no major sell signals have been registered.

The data, however, continues to suggest the market is at a fairly high level of risk as the “shock absorbers” appear to be weak and likely unable to withstand selling pressure should negative news hit the tape.

  • The 1-day McClellan OB/OS Oscillators are back at overbought levels across the board (All Exchange: +67.57 NYSE: +75.17 NASDAQ: +61.86).
  • The Open Insider Buy/Sell Ratio (page 9) remains in neutral territory at 27.4 but continues to be in a downtrend as the number of insider selling transactions has been outweighing purchases over the past several sessions.
  • Meanwhile, the detrended Rydex Ratio (contrarian indicator) remains overbought at 1.41 as the leveraged ETF traders continue their leveraged long exposure. Notably, the total leverage for the Rydex is at a 3-year high.
  • This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw another decline in bearish advisors as bullish sentiment increased and remains in bearish territory at 18.2/59.6.
  • The valuation gap remains extended, in our view, with the SPX forward multiple of 22.5 with consensus forward 12-month earnings estimates from Bloomberg of $159.07 while the “rule of 20” finds fair value at 19.1.
  • The SPX forward earnings yield is 4.45% with the Treasury yield at 0.86%.

In conclusion, the charts, in our opinion, have yet to generate any notable sell signals. Nonetheless, Rydex leverage, insider selling and valuation suggest there is a fairly high level of risk present should unexpected negative news appear.

: 3,522/3,618

: HVS28,440/29,796

COMPQX: HVS11,477/11,958

NDX: HVS11,611/12,185

DJT: HVS11,603/NA

MID: HVS2,016/NA

RTY: 1,700/NA


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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