The S&P 500 has remained directionless over the last fortnight, but measures of sentiment and selling intensity suggest a more optimistic outlook, according to Ari Wald, Technical Analyst at Oppenheimer.
Wald cites two reasons to be optimistic:
1) Selling is becoming ‘less bad’, i.e. for the Russell 3000, there were fewer net new lows for the March bottom versus February’s bottom (see Chart 1, lower pane).
2)The 10-day Put/Call ratio is at its lowest level since November 2016, suggesting high levels of pessimism; usually a contrarian indicator coinciding with market lows (see Chart 2).
Overall, Wald thinks the S&P 500’s 10% decline since January has created favourable conditions for investors with a longer-term focus. However, he says it is important that the index defends the 200-day moving average in the meantime, currently at around 2,550. A rally above 2,700 would then confirm a stronger trading environment.