The S&P 500 Flashed a Bearish Stochastic Crossover Signal

 | May 12, 2017 | 10:19 AM EDT
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All of the indexes closed lower yesterday, with negative internals on the NYSE and Nasdaq as volumes rose on the NYSE from the prior session, while Nasdaq volumes dipped.

No support or resistance levels were violated, although one index trend turned neutral from positive for the near term. It was one of two yellow flags appearing on the charts, while the data are largely neutral. Nonetheless, we have not seen quite enough of a shift in the weight of the evidence that would suggest a change in our near-term "neutral" outlook for the major equity indexes.

On the index charts, all closed lower yesterday with negative internals on the NYSE and Nasdaq while NYSE volumes rose. No support or resistance levels were violated. However, the Nasdaq did close below its short-term uptrend line, the first yellow flag, leaving only the S&P 500 in a near-term uptrend.

All the rest are now neutral. Support levels were tested on the S&P 500, Dow Jones Transports DJT, S&P Midcap 400 Index MID and Russell 2000, but not violated.

The S&P 500 did flash a "bearish stochastic crossover signal", raising the second yellow flag. However, it is not actionable, in our opinion, unless support is violated.

Finally, the Nasdaq Advance/Decline line (page 9) returned to negative from neutral and remains on a "bearish divergence" signal, a condition worth noting but not as historically significant as if it was happening on the NYSE.

The data are almost completely neutral, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:-10.65/+19.04 NYSE:-24.0/+17.98 NASDAQ:-18.71/+9.79).

The Equity and OEX Put/Call Ratios are neutral at 0.65 and 1.12 respectively, as is the Open Insider Buy/Sell Ratio at 32.6.

In conclusion, while a bit more cautionary weight was placed on the negative side of the scales, we are not of the opinion that it warrants a change in our near-term "neutral" outlook for the major equity indexes at this point in time. Violations of price support would have greater impact in that regard.

Forward 12 month earnings estimates for the SPX from IBES of $134.56 leave a 5.62 forward earnings yield on a 17.8 forward multiple, near a decade high.

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