3 Hammer Levels Hold, Rest Fail; Soaring 10-Year Treasury Behind Market Weakness

McClellan 1-Day OB/OS Oscillators Oversold

The major equity indexes closed notably lower yesterday with broadly negative internals on the NYSE and NASDAQ as trading volumes intensified from the prior session. All closed at or near their lows of the day with all but one violating their near-term support levels that left all the index charts in near-term downtrends.

The hammer levels discussed in our past few reports held their ground on some of the indexes as others failed. However, while cumulative market breadth suffered as well, the McClellan 1-day OB/OS Oscillators are now in oversold territory that may offer some degree of stabilization from the three-day slide in equity prices.

The 10-year Treasury yield that has been the culprit behind the market weakness rose again, but is now reaching a level we suspect may prove to be difficult to overcome over the near-term that may also offer some respite.

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On the charts, the major equity indexes closed lower yesterday with very negative internals as trading volumes rose from the prior session.

• All closed near their intraday lows with only the SPX managing to not violate its near-term support level. As a result, all the indexes are now in near-term downtrends.
• Regarding the hammer levels discussed over the past few of our morning notes, they held on the SPX, NDX, and VALUA as the DJI, DJT, MID, and RTY failed.
• Cumulative market breadth deteriorated as well with the advance/decline lines for the All Exchange, NYSE and NASDAQ negative.
• Offering a slight glimmer of hope, the stochastic levels for the COMPQX, NDX and DJT are now oversold but have yet to generate bullish crossover signals.

The data finds the McClellan 1-Day OB/OS Oscillators are now oversold and may offer some stabilization from the recent market slide (All Exchange: -59.61 NYSE: -51.95 NASDAQ: -66.44).

• The % of SPX issues trading above their 50 DMAs slipped to 50% and remains neutral as the Open Insider Buy/Sell Ratio was unchanged at 45.8, staying neutral as well.
• The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dropped to 0.74 and remains neutral as said traders became more nervous.
• This week’s contrarian AAII Bear/Bull Ratio is 0.98, also staying neutral. The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator) remains neutral as the number of bulls and bears dropped from the prior week.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $225.05 for the SPX. As such, the SPX forward multiple dropped to 20.3 with the “rule of 20” finding ballpark fair value at 18.1.
• The SPX forward earnings yield is 4.91%.
• The 10-year Treasury yield rose to 1.87% and above what we viewed as resistance. We view support for the 10-year at 1.60% with new resistance at 1.93%. In our opinion, this new resistance may prove to be a barrier to a further rise in yield over the near-term as it is at the level seen on Jan. 7 of 2020 just prior to the COVID breakout that shook the equity markets and bond prices.

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In conclusion, yesterday’s session did plenty of technical damage to the charts and market breadth. However, the current 10-year yield and some of the data suggest we may now see some stabilization.

SPX: 4,575/4,663 DJI: 35,204/35,922 COMPQX: 14,465/14,920 NDX: 15,150/15,559

DJT: 15,583/16,000 MID: 2,721/2,790 RTY: 2,075/2,150 VALUA: 9,613/9,827

Written By: Guy S. Ortmann, CMT