Technical Picture Dims as Two Indexes Break Support
As we close out a holiday-shortened week, where does the market stand?
We saw some more weakening on the technical front Thursday with two indexes closing below support while cumulative market breadth remains bearish.
On the data front, the deeply oversold McClellan OB/OS Oscillators going into Thursday’s trading have largely shifted back to neutral while investor sentiment (contrarian indicators) is still too bullish and the forward valuation for the S&P 500 remains very extended.
Let's look closer now at the charts and data.
DJIA and Nasdaq 100 Charts Break Support
On the charts, the major equity indexes closed mixed Thursday with the S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 posting losses as the rest gained.
Market internals were positive, however, for the NYSE and Nasdaq.
With that said, the technical picture dimmed a bit further with the DJIA and Nasdaq 100 (see below) closing below their near-term support levels.
Chart Source: Bloomberg
Regarding near-term trends, they are unchanged with the Nasdaq indexes still bullish, the S&P neutral and the rest bearish.
Cumulative market breadth remains bearish on the All Exchange, NYSE and Nasdaq.
Two warning signs flashed with the COMPQX and NDX registering bearish stochastic crossover signals that have been prescient on the other indexes recently.
McClellan 1-Day Oscillators Oversold Conditions Turn Neutral
The data remain mixed.
The 1-Day McClellan Overbought/Oversold Oscillator that were oversold have mostly shifted back to neutral with the NYSE only mildly oversold. (All Exchange: -39.09 NYSE: -51.0 Nasdaq: -33.23).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 42% staying neutral.
Also of note, the detrended Rydex Ratio (contrarian indicator) remains on its warning signal as the typically wrong leveraged ETF traders maintained their leveraged long exposure at 1.23. They have yet to acknowledge the market’s recent weakness.
The detrended Rydex Ratio is 1.23% (bearish)
This week’s AAII Bear/Bull Ratio (contrarian indicator) is unchanged at 0.66 and is neutral.
Yet the Investors Intelligence Bear/Bull Ratio (contrary indicator) is bearish at 17.7/56.5 as bulls outweigh bears.
The Open Insider Buy/Sell Ratio is neutral as it rose to 44.6. Leveraged ETF sentiment is -11.8, remaining neutral.
Valuation
The 12-month consensus earnings estimate for the S&P 500 from Bloomberg rose to $253.05 per share. Yet, its forward P/E multiple at 20.7x remains well above the “rule of 20” ballpark fair value of 15.5x. This 500-basis point premium remains a significant cause for concern.
The S&P's earnings yield is 4.83%.
The 10-Year Treasury yield dipped to 4.55%. Its trend is bullish with support at 4.5% and resistance is at 4.65%.
The U.S. dollar, via the (UUP) ETF, closed lower at $28.69 and is neutral. Support is $28.49 and $29.08 is resistance.
Bottom Line
For the reasons noted above, we believe there is enough evidence to suggest maintaining our current near-term cautious outlook for equities as a whole.
We continue to honor sell signals on individual names while being very selective on the buy side.