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Clouds Remain Overhead on the Charts So Expect More Chop

We got some negative technical events, though the overall data still appear neutral.

Oct 4, 2024, 9:46 AM EDT

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Several negative technical signals came in on Thursday, as the overall data still look neutral. 

The quick and dirty: We can expect more sideways chop ahead.

Let's look under the hood:

Charts and Technicals 

All index charts closed near their session midpoints, which resulted in several negative technical events:

  • The S&P 500, Dow Jones, Dow Jones Transports, the mid-caps and the small-cap Russell 2000 closed below support, while the Dow Transports closed below its 50-day moving average and the Russell 2000 trend shifted from neutral to bearish.
  • Only the Dow Jones is in a bullish trend with the rest neutral.
  • Cumulative market breadth also weakened with the advance/decline lines for the All Exchange and Nasdaq turning bearish as the New York Stock Exchange's stayed neutral.
  • The stochastic levels are mostly neutral, but the Russell's is oversold yet has not generated a bullish crossover signal so far.

The data is still largely neutral.

  • The one-day McClellan overbought/oversold oscillators are neutral, except for the NYSE that is mildly oversold (All Exchange: -43.54; NYSE: -50.18; Nasdaq: -40.79).
  • The percentage of S&P 500 issues trading above their 50-day moving averages -- a contrarian indicator -- slipped to 72% and is neutral after its previous warning signal early this week of 83% that, once again, demonstrated its prescience.
  • Another contrarian indicator, the detrended Rydex Ratio, is unchanged to 0.96 and still neutral.
  • The Open Insider Buy/Sell Ratio dipped to 46.1 and is also neutral, but saw buyers earlier in the week.
  • This week’s American Association of Individual Investors Bear/Bull Ratio, a contrarian indicator, dipped to a neutral 0.58, but the number of bears declined.
  • The Investors Intelligence Bear/Bull Ratio, which is also a contrarian indicator, remains neutral at 22.6/52.5, but the number of bulls rose.
  • Finally, valuation does remain a concern. The 12-month consensus earnings estimate for the S&P 500 from Bloomberg dropped to $256.32, leaving its forward price-to-earnings at 22.2 still well above the “rule of 20” ballpark fair value at 16.2. We believe this premium still presents some risk.
  • Its earnings yield is 4.5%.

The Buck and Treasuries 

The 10-year Treasury yield rose to 3.85% and above resistance. Support is 3.78% and new resistance at 3.86%. Its near-term trend is bullish.

The U.S. Dollar, via Dollar Index Bullish Fund UUP closed higher at $28.51 and above resistance. Its trend is bullish with support at $28.34 and new resistance at $28.52.

The Bottom Line

Clouds are still overhead as the chop continues.