3 Signs That Not All Is Well With Stocks
This is a good time to review the market's 'vitals.' We check the latest charts and data here.
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As we begin a new week of trading, let's check the market's dashboard.
The major equity indexes closed mixed Friday with most closing near the midpoints of the session, leaving their near-term trends a mix of bullish and bearish projections. However, two indexes now have overhead resistance levels that were not present previously.
Unfortunately, cumulative market breadth remains a concern as said breadth is mostly bearish. Meanwhile, warning signs persist regarding investor sentiment and forward valuation of the S&P 500.
Equity Index Trends Remain Mixed
On the charts, the Dow Jones Transports, MidCap 400 and Russell 2000 closed lower Friday as the rest posted gains. Most closed near the midpoint of their intraday ranges, which did not generate any important technical signals on the charts.
Near-term trends remain positive for the S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 with the rest bearish.
We would note the Nasdaq Composite (see above) and Nasdaq 100 now have technical overhanging resistance levels that did not exist previously while their accelerated uptrend lines were violated.
Cumulative market breadth remains disconcerting with the advance/decline lines for the All Exchange and Nasdaq bearish as breadth continued to deteriorate.
The NYSE A/D is neutral.
No stochastic signals of import were registered.
Cumulative Market Breadth Mostly Bearish as Is Most Sentiment Data
The data remain mixed.
The 1-Day McClellan OB/OS Oscillators are still neutral (All Exchange: -33.33 NYSE: -33.84 Nasdaq: -36.18).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 52 staying neutral.
Of note, the detrended Rydex Ratio (contrarian indicator) remains bearish at 1.23.
Thus, two of the three sentiment indicators are cautionary with last week’s AAII Bear/Bull Ratio (contrarian indicator) a neutral 0.69, but the Investors Intelligence Bear/Bull Ratio (contrary indicator) staying bearish at 17.6/60.3 as bulls well outweigh bears.
The Open Insider Buy/Sell Ratio remains neutral but dropped to 34.6 as they have been picking up their selling activity.
Leveraged ETF sentiment is 10.4 remaining neutral.
Regarding valuation
The 12-month consensus earnings estimate for the S&P 500 from Bloomberg dipped to $253.21 per share. Its forward P/E multiple of 21.6x remains well above the “rule of 20” ballpark fair value at 15.7x. This remains an important concern for us as an almost 600-basis point premium remains significant.
The S&P's earnings yield is 4.63%.
The 10-Year Treasury yield rose to 4.26%. Support is 4.18% and resistance is at 4.35%. Its near-term trend is bearish.
The U.S. dollar, via the UUP ETF, closed higher at $29.10 and above resistance. Its trend remains bullish. Support is $28.89 and $29.23 is resistance.
Bottom Line
Breadth, sentiment and valuation suggest not all is well for equities in general. We remain cautious.
We believe the weight of the evidence continues to imply caution should be employed when approaching equities in general with sell signals on individual names being honored as any buying should be very selective.