LATESTLatest NewsMarket CommentaryInvestingTechnical Analysis
market-commentary

To Buy or Not to Buy? Let's Check the Charts

We're starting to see some technical relief and moves into neutral territory.

Aug 23, 2024, 2:00 PM EDT

You've reached your free article limit

You've read 0 of 1 free Pro articles.

Unlock unlimited Pro access — 50% off
Already registered or a Pro member? Log in

If you're in the mood to make some choosy buys, then the technical indicators and charts -- which are mostly showing some relief -- are backing you up.

The McClellan one-day overbought/oversold oscillator is back to neutral from being overbought. The S&P 500 and the Russell 2000, meanwhile, remain in uptrends. 

And so are the cumulative advance/decline lines for the All Exchange, Nasdaq and New York Stock Exchange (All Exchange: 29.65; NYSE: 33.33; Nasdaq: 27.98). The Dow Jones industrial average, the Dow Transports, the Nasdaq Composite index, the Nasdaq 100 and the mid-caps closed below their near-term uptrend lines, moving into neutral territory.

The Stochastic levels still appear overbought, but they have yet to show any bearish crossover signals. 

The Indicators 

  • The percentage of S&P 500 issues trading above their 50-moving average lines, which is a contrarian indicator, dropped to 71% and remains neutral.
  • The detrended Rydex Ratio, also a contrarian indicator, however, rose to 1.02 and is now mildly bearish.
  • This week’s American Association of Individual Investors Bear/Bull Ratio, also a contrarian indicator, dropped to 0.73, staying neutral.
  • But the Investors Intelligence Bear/Bull Ratio, another contrarian indicator, stayed bearish at 30.89% with investment adviser bulls continuing to outweigh bears by a wide margin.
  • The Open Insider Buy/Sell Ratio dropped to a neutral 27.6% as insiders continued to do some selling.

Valuation and that Wall of Worry

We do believe, however, that the “wall of worry” could use some further strengthening. We also see valuation as a lingering concern. The 12-month consensus earnings estimate for the S&P 500 from Bloomberg slipped to $250.82. That leaves its forward price-to-earnings of 22.2 still well above the “rule of 20" ballpark fair value at 16. We believe this premium remains significant and presents some risk. Its earnings yield lifted to 4.5%.

The Buck and Treasury 

The 10-year Treasury yield rose to 3.86%. Support is 3.70% and resistance at 3.94%. Its near-term trend is bearish. Also, the U.S. dollar, via the Dollar Index Bullish Fund UUP, closed higher at $28.20. Its trend is bearish with new support at $28.07 and resistance at $28.35.

The Bottom Line

Time to consider some selective buying.