There Is No Indication the Market Bottom Is In

 | Apr 25, 2018 | 1:42 PM EDT
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The large-cap indices broke support on the charts Tuesday and it wasn't pretty. This turned their near-term trends negative, while the the mid-caps and small-caps held support levels. Cumulative breadth has deteriorated as well. What's more, we do not see any strong indications from the charts or data that a bottom has been achieved.

Let's break it all down and why we have changed our near-term outlook to "neutral/negative" from "neutral/positive."

Charts

On the charts, all of the indices closed lower Tuesday with broadly negative internals on strong trading volumes. All closed near the lower end of their intraday ranges.

Source: Worden

Support levels, adjusted below, were broken on the S&P 500 (see above), Dow Jones Industrial Average (see below), Nasdaq Composite and Nasdaq 100.

Source: Worden

The Dow Transports closed below its short-term uptrend line, turning its trend to neutral as well as its 50-day moving average. The Value Line Arithmetic Index also closed below its uptrend line, turning the trend to neutral while the S&P MidCap 400 (page 4) closed below its 50 DMA.

The cumulative advance/decline lines are now negative for the All Exchange, NYSE and NASDAQ with the NASDAQ's below its 50 DMA.

So, we now find the large cap indices, with the exception of the Dow Transports, in short-term downtrends with the mid-caps and small-caps neutral. Unfortunately, all of the stochastic readings remain neutral and have yet to reach oversold conditions that would suggest a bounce.

Data

Most of the important data remains neutral, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:-29.46/+24.81 NYSE:-31.5/+38.69 NASDAQ:-29.26/+14.24). Like the stochastic readings, they have yet to reach oversold conditions suggestive of a bounce.

The Equity Put/Call Ratio (0.68) and OpenInsider Buy/Sell Ratio (39.3) remain neutral while OEX Put/Call Ratio at very bullish 0.38 finds the pros have increased their call exposure with the Total P/C (contrary indicator) finding the crowd very long puts at a bullish 1.04.

Valuation

Forward 12-month earnings estimates for the S&P 500 from Bloomberg are $161.09 per share, leaving a 6.1% forward earnings yield on a 16.4x forward P/E multiple versus the "rule of 20" implied fair value at 17.0x.

The extent of Tuesday's damage to the stock index charts combined with a lack of bottoming signals from the stochastic and OB/OS readings is sufficient to change our near-term view. Violations of resistance and downtrends will be needed for us to become more positive.

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