Tuesday, January 31, 2023

S&P 500 “Evening Star” Pattern Completed


Cumulative Market Breadth Weakens

The major equity indexes closed mostly lower Wednesday with the exceptions of the COMPQX and NDX posting minor gains. All closed at or near their intraday lows with broadly negative internals on the and . The charts saw some violations of uptrends and bearish stochastic crossover signals generated while the cautionary “evening star” candlestick pattern on the SPX, as discussed yesterday, was completed.

Meanwhile, as the McClellan OB/OS Oscillators remain neutral, the dynamic between the leveraged ETF traders and insider selling activity remains cautionary. So, as a few more clouds have come across the horizon, the charts and data continue to suggest we maintain our near-term “neutral” macro-outlook for equities.

On the charts, the major equity indexes closed mostly lower yesterday with broadly negative internals on the NYSE And NASDAQ.

  • The only gainers were the COMPQX and NDX that were marginal. All closed at or near their intraday lows.
  • The MID and RTY closed below their near-term uptrend lines and are now neutral as the RTY also violated support.
  • The rest of the charts remain in near-term uptrends.
  • We would note the “evening star” pattern on the SPX discussed in yesterday’s comments was completed and suggests some caution as do the bearish stochastic crossover signals generated on the MID and VALUA.
  • Cumulative market breadth deteriorated as well with the All Exchange, NYSE and NASDAQ A/Ds turning neutral form positive.

The data finds the McClellan 1-Day OB/OS Oscillator are neutral (All Exchange: -2.33 NYSE: -0.93 NASDAQ: -3.8).

  • As noted yesterday, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders moved deeper into bearish territory as they extended their leveraged long exposure to 1.32.
  • In contrast, the Open Insider Buy/Sell Ratio remains on a bearish signal at 24.3 as insiders have been selling strength lately. While not perfect, their relationship suggests some caution is warranted currently.
  • This week’s contrarian AAII Bear/Bull Ratio (32.13/36.97) turned neutral with the increase in bulls. The Investors Intelligence Bear/Bull Ratio (23.9/43.2) (contrary indicator) remained neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $214.07 for the SPX. As such, the SPX forward multiple is 21.3 with the “rule of 20” finding fair value at approximately 18.4.
  • The SPX forward earnings yield is 4.7%.
  • The closed lower at 1.53%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, said trend could prove problematic for equities.

In conclusion, while the futures point to a positive open this morning, the charts and data continue to suggest enough risk is present to keep our near-term “neutral” macro-outlook for equities in place.

: 4,525/NA : 35,028/35,653 COMPQX: 15,017/15,373 : 15,009/15,680

: 15,302/15,945 : 2,747/NA : 2,250/2,280 VALUA: 9,646/NA

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