Technically Speaking, You Best Keep Your Guard Up
The McClellan one-day overbought/oversold oscillators are now neutral and implying more weakness.
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The worst of the action might now be over yet.
First, the McClellan one-day overbought/oversold oscillators are now neutral and implying more weakness. (All Exchange: -13.37; NYSE: -2.65; Nasdaq: -19.85).
But let's check the charts and technicals for the details.
The Charts
All indexes closed near their session lows yesterday that saw the S&P 500, Nasdaq, Nasdaq 100, Russell 2000 small caps and the mid-caps, close below support. Also, the S&P and Dow Jones closed below their uptrend lines, turning neutral from bullish. All but the Dow Jones Transports, that is in an uptrend, and is now neutral.
The Technicals
Cumulative market breadth turned bearish from neutral on the Nasdaq with the New York Stock Exchange advance/decline bullish and the All Exchange neutral. Bearish stochastic crossovers were registered on the Dow Jones industrials and transports.
Also, the percentage of S&P 500 issues trading above their 50-day moving averages, a contrarian indicator, slipped back to 71% and neutral from its prior bearish level of 81%.
The detrended Rydex Ratio, also contrarian indicator, declined as well, to 0.93, turning neutral from mildly bearish.
This week’s American Association of Individual Investors Bear/Bull Ratio, a contrarian indicator, dropped 0.67 but stayed neutral. The Investors Intelligence Bear/Bull Ratio, however, dropped to neutral from bearish at 21.9/50.0. It appears the prior excess of bullish sentiment has dissipated.
The Open Insider Buy/Sell Ratio is unchanged at 28.7% and neutral. They are not active buyers yet.
But valuation remains a concern. While the 12-month consensus earnings estimate for the S&P 500 from Bloomberg rose to $258.27, it leaves its forward price-to-earnings of 21.4 still well above the “rule of 20" ballpark fair value at 16.2. We believe this premium remains significant and still presents some risk. Its earnings yield rose slightly to 4.67%.
The Buck, Treasuries
The 10-year Treasury yield moved lower to 3.84%. Support is 3.70% and resistance at 3.94%. Its near-term trend is neutral. The U.S. Dollar, via the Dollar Index Bullish Fund UUP, closed higher at $28.31. Its trend is neutral with support at $28.17 and resistance at $28.37.
The Bottom Line
Expect to see some further downside before the markets calm down.