Technicals Appear Mixed Amid Bearish Breadth
Here's why we're still cautious in the near term.
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Some key indicators are oversold and breadth is still bearish, but overall, the technical picture is mixed following Friday's positive session.
All the major equity indexes closed higher Friday, but the New York Stock Exchange's internals were negative with the Nasdaq’s positive. Most closed near their session lows.
But, the advances were not sufficient to alter any of their near-term trends that remain a mix of bullish, bearish and neutral projections. Also, cumulative market breadth remains bearish and worthy of note.
Charts and Technicals
The data dashboard finds the McClellan overbought/oversold oscillators still mostly oversold with some bounce potential, as the investor sentiment data has become a bit less threatening. But our concerns about extended valuation of the S&P 500's forward 12-month earnings estimates persist. Thus, we continue to view the markets with some degree of caution.
No big technical events were registered on the charts. The Dow Jones Transports are bullish, the Nasdaq 100 and mid caps are neutral and the S&P, Dow Jones Industrials, Nasdaq Composite and Russell 2000 are bearish.
Cumulative market breadth is still bearish, suggesting a weak underlying foundation worthy of respect.
Some of the stochastic levels are oversold but have not yet registered bullish crossover signals.
The one-day McClellan overbought/oversold oscillators are still oversold on the All Exchange and NYSE, suggesting some potential pause/bounce, while the Nasdaq is has turned neutral (All Exchange: -59.42; NYSE: -89.69; Nasdaq: -39.07).
The Open Insider Buy/Sell Ratio also rose to 35.3, staying neutral.
As for some contrarian indicators, here's what we see: The percentage of S&P issues trading above their 50 day moving averages rose to 48% staying neutral. The detrended Rydex Ratio, however, dipped to 0.91, also staying neutral and less threatening.
Last week’s American Association on Individual Investors Bear/Bull Ratio turned mildly bearish from bearish at 0.57.
The Investors Intelligence Bear/Bull Ratio also shifted to mildly bearish at 21.7/58.0.
Finally, valuation remains a concern. The 12-month consensus earnings estimate for the S&P 500 from Bloomberg declined to $256.31, leaving its forward price to earnings of 22.4 remaining well above the “rule of 20” ballpark fair value at 15.6, as has been the case for the past several months. We believe this premium still presents some risk.
Its earnings yield is 4.7%.
Buck and Treasury
The 10-year Treasury yield rose to 4.36% above resistance and in an uptrend. Support is 4.10% with new resistance at 4.4%.
The U.S. dollar, via the Bullish Dollar Index Fund UUP, closed higher at $29.32 and is neutral. Support is $29.02 and resistance at $29.32.
Bottom Line
In conclusion, the weight of the evidence still suggests some caution regarding the market’s near-term prospects.