As the Crowd Heads for the Bomb Shelter, Look for Buying Opportunities

It's been a long week. And it's only Wednesday. Just when we got some positive market action, we got a reminder Wednesday morning that the bank crisis is not over.

But where do things stand with the charts and data?

Despite Tuesday's gains all the major equity indexes are still in near-term bearish trends as is overall market breadth.

Yet there is still some encouragement coming from the data dashboard as the 1-day McClellan OB/OS Oscillators remain in oversold territory while insiders further increased their recent aggressive buying activity as opposed to their active selling through most of the recent correction. They are buying as the crowd heads for the bomb shelter, a dynamic that has been historically bullish.

Given the data setup, while we are not expecting all boats to rise, we continue to believe we have been presented with a buying opportunity on a very selective basis.

Indexes Bounce but Remain Near-Term Bearish

On the charts, only the Dow Jones Transports closed lower Tuesday as the rest posted gains with positive internals on the NYSE and Nasdaq.

Positive chart events occurred on the Nasdaq Composite and Nasdaq 100 as both closed above resistance.

Yet, said gains were unable to alter the near-term chart trends that remain bearish across the board.

Cumulative market breadth is also negative with the NYSE, All Exchange and Nasdaq advance/decline lines still in downtrends.

On the stochastic front, a bit of encouragement came in the form of the S&P 500 (see below) and Nasdaq Composite generating bullish crossover signals.

Chart Source: Worden

McClellan Still Oversold While Insiders Intensify Buying Activity

The data dashboard is still offering some encouragement.

The 1-Day McClellan Overbought/Oversold Oscillators remain oversold with the NYSE very oversold (All Exchange: -87.60 NYSE: -101.30 Nasdaq: -79.44).

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) edged up to 22% and is back to neutral from bullish.

We continue to be intrigued by the Open Insider Buy/Sell Ratio, which finds insiders still increasing their buying activity up to 66.3 versus the previous day's 22.1. They have completely reversed there prior selling into weakness from earlier in the correction while the crowd runs for cover, a dynamic that is typically bullish for equities.

The Open Insider buy/sell ratio is 66.3% (neutral)

The detrended Rydex Ratio (contrarian indicator) is unchanged at -0.38, staying neutral.

This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.79 and is now very bullish with very high investor fear.

The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 24.7/45.2.

Valuation Gaps Widens

The valuation gap of the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 at $220.29 per share, widened a bit, with its forward P/E multiple now at 17.8x as the "rule of 20" ballpark fair value dipped to 16.4x. It remains at a premium but less than has been the case over the past four weeks.

The S&P's forward earnings yield is 5.62%.

The 10-Year Treasury yield closed higher at 3.64%. It is short-term negative with support at 3.40% and resistance at 3.62%, by our analysis.

Our Market Outlook

Despite very negative trading action Wednesday morning, we remain of the opinion that some very selective buying can be done with what has turned into a stock pickers' environment. Not all boats will rise but there are those that look quite appealing from both a technical and fundamental viewpoint.

At the time of publication, Ortmann had no positions in any securities mentioned.