Saturday, January 28, 2023

Market Data Counterbalances With Cautionary Signals


The major equity indexes closed higher Tuesday with positive internals on the and on very heavy trading volume. All closed at or near their intraday highs with several posting new all-time closing highs. The bulk of the charts remain in bullish near-term uptrends with no sell signals registered at this stage and, in our opinion should continue to be respected. However, the data dashboard is still sending counterbalancing signals that imply risk levels are high should negative news hit the tape. As such, with the charts bullish and the data bearish, we are maintaining our near term “neutral” outlook for the equity markets in general.

On the charts, all the major equity indexes closed higher yesterday with positive internals and heavy trading volumes as all closed at or near their intraday highs.

  • New all-time closing highs were registered on the (page 2), DJI (page 2), DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5).
  • The COMPQX (page 3) closed above resistance and is now in a near-term uptrend as are all others except the NDX (page 3) that remains neutral.
  • Market breadth remains positive with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ positive and above their 50 DMAs.
  • We have yet to see any sell signals generated on the charts and, as such, said trends should continue to be respected until proven otherwise.

The data, however, continues to intensify its cautionary signals that suggest a high level of near-term risk exists should negative news of some import hit the tapes. The “shock absorbers” remain weak.

  • The 1-day McClellan OB/OS Oscillators are overbought across the board (All Exchange: +85.61 NYSE: +98.13 NASDAQ: +76.23).
  • The Open Insider Buy/Sell Ratio (page 9) remains in neutral territory but dropped to 26.1 and very near bearish readings. It remains in a downtrend as the number of insider selling transactions has been outweighing purchases fairly consistently over the past several sessions.
  • Meanwhile, the detrended Rydex Ratio (contrarian indicator) moved into very bearish territory at 1.64 as the leveraged ETF traders continue push their leveraged long exposure.
  • Historically, insiders have Typically been on the right side of the trad in these situations.
  • 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 extended further with the SPX forward multiple of 22.9 with consensus forward 12-month earnings estimates from Bloomberg dipping to $158.99 while the “rule of 20” finds fair value at 19.1.
  • The SPX forward earnings yield is 4.37% with the Treasury yield at 0.88%.

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. We remain “neutral” as we believe a reasonable level of caution is warranted.

SPX: 3,547/NA

DJI: HVS29,215/NA

COMPQX: HVS11,757/12,056

NDX: HVS11,834/12,185

DJT: 12,308/NA

MID: 2,118/NA

RTY: 1,700/NA

VALUA: 7,298/NA

Our next report will be issued Monday, Nov. 30.

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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