After a surge of buying Monday on positive vaccine news, all the major equity indices closed at or near their intraday lows. In fact, the Nasdaq was lower on the day as the stay-at-home stocks suffered.
This action as well as several other signs could imply some retracement of recent gains is becoming more probable.
On the Charts
Source: Worden
The equity indices closed mostly higher Monday with positive internals on the NSYE and Nasdaq as trading volumes surged. All closed above their near-term resistance levels with the exception of the Nasdaq Composite (see above)) and Nasdaq 100 as investors exited stay-at-home stocks in response the virus vaccine news.
The Value Line Arithmetic Index made a new closing high.
All remain in near-term uptrends and above their 50-day moving averages.
However, early session enthusiasm steadily evaporated during the day with all closing at or near their intraday lows. In our opinion, this may imply a short-term top as buying interest may have been exhausted for the moment.
And while the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive and above their 50 DMAs, stochastic readings are well into overbought levels although no bearish stochastic crossovers have been registered to date.
Data Turn More Cautionary
The one-day McClellan Overbought/Oversold Oscillators are back at overbought levels for the All Exchange and NYSE while the Nasdaq is neutral (All Exchange: +57.54 NYSE: +69.57 Nasdaq: +47.25).
Also, the Open Insider Buy/Sell Ratio, although neutral, dropped to 29.8 and remains neutral as insiders intensified their selling activity during Monday's trading session.
In contrast, the Rydex Ratio (contrarian indicator) jumped to a bearish 1.22 as the leveraged ETF traders jumped on the leveraged long wagon. The insider/Rydex dynamic is now going in a negative direction, in our opinion.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a decline in bullish advisors but remains bearish at 20.6/53.6.
S&P 500 Valuation
The valuation gap extended further with the S&P 500 trading at a forward P/E multiple of 22.4x with consensus 12-month earnings estimates from Bloomberg of $158.15 per share while the "rule of 20" finds fair value at 19.0x.
The S&P's forward earnings yield is 4.45% with the 10-year Treasury yield jumping to 0.96%.
Near-Term Outlook
While we remain near-term "neutral/positive" on the equity markets, Monday's close near the lows combined with the OB/OS, psychology data and valuation now suggest we may well see some retracement of the recent gains.
At the time of publication, Ortmann had no positions in any securities mentioned.