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Tuesday, October 19, 2021

Late Session Selling Pressure Continues

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Near-Term Macro-Outlook Remains “Neutral/Negative”

All the major equity indexes closed lower yesterday with negative internals on the while the had negative breadth but positive up/down volume. All closed at or near their intraday lows as late session selling pressure appeared once again as has frequently been the case of late.

The charts saw no violations of support or trend, however, leaving them in a mixed bag of positive, neutral and negative near-term trends while cumulative market breadth deteriorated on the NASDAQ.

The data remains generally neutral. So as much as we would like to say otherwise, we have yet to see the charts and data give signals that would suggest a change in our current near-term “neutral/negative” macro-outlook for equities would be appropriate.

On the charts, all the major equity indexes closed lower yesterday with generally negative internals.

  • All closed at or near their intraday lows as the mid-session rally gave way to late session selling pressure as has frequently been the case of late. In our opinion, the last hour of trade tends to be a more telling sign of how rational participants view the markets as opposed to opening session moves that are frequently emotional responses to news headlines. As such, the last hour tends to have greater precedence regarding market probabilities.
  • The charts were largely unchanged with no violations of support or trend although the VALUA did manage to close above its 50 DMA. Said trends remain positive on the DJT negative on the COMPQSX and NDX and neutral on the rest.
  • Cumulative breadth turned negative of the NASDAQ with the All Exchange and NYSE A/Ds neutral.
  • No stochastic signals were generated.

The data finds the McClellan 1-Day OB/OS Oscillators remaining neutral (All Exchange: -7.85 NYSE: +4.3 NASDAQ: -17.36).

  • The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders slipped further to a neutral 0.18 as their bullish expectations have waned from their excesses at the market’s highs.
  • The Open Insider Buy/Sell Ratio remains in bearish territory at 24.3 as insiders recently increased their selling activity.
  • This week’s contrarian AAII Bear/Bull Ratio (38.9/27.83) remains mildly bullish as the “crowd” has become cautious.
  • The Investors Intelligence Bear/Bull Ratio (22.5/40.4) (contrary indicator) saw a drop in bulls but remains neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $213.32 for the SPX. As such, the SPX forward multiple is 20.6 with the “rule of 20” finding fair value at approximately 18.4.
  • The SPX forward earnings yield is 4.89%.
  • The Treasury yield is 1.61% and is now just shy of resistance at 1.62%. It continues to suggest higher rates forthcoming that could become an issue for equities, in our opinion. We see support at 1.47%.

In conclusion, nothing has occurred on our radar that would suggest a shift in the supply/demand dynamic has changed as supply remains in control. Thus, we are keeping our near-term “neutral/negative” macro-outlook for equities in place.

: 4,300/4,427 : 33,914/34,951 COMPQX: 14,292/14,670 : 14,509/14,920

: 14,256/14,731 : 2,624/2,723 : 2,200/2,280 VALUA: 9,361/9,590

All charts courtesy of Worden

S&P 500

Dow Jones Industrials

DJI Daily Chart

NASDAQ Composite


NDX Daily Chart

Dow Jones Transports

DJT Daily Chart

S&P Midcap 400

MID Daily Chart

Russell 2000 Futures

RTY Daily Chart

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