What the Charts Say After Tuesday's Stock Market Decline

 | May 16, 2018 | 10:23 AM EDT
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Despite Tuesday's stock market selloff, no support levels were violated on the charts although two indices dipped below their short-term uptrend lines.

We are maintaining our near-term "neutral/positive" outlook for the major equity indices, although a possible pause or retracement of some of the recent gains continues to exist.

Let's take a closer look at the charts, data and valuation of the major indices.

Index Charts

On the charts, all of the indices closed lower Tuesday with negative internals and higher-than-prior trading volumes on both the NYSE and NASDAQ. Most closed near the midpoint of their intraday ranges.

Source: Worden

While no support levels were violated on the charts, near-term uptrend lines for the Dow Jones Industrial Average (see above) and Dow Transports (see below) were violated on a closing basis, turning their near-term trend from positive to neutral. The rest of the indices remain in short-term uptrends as do the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.

Source: Worden

Stochastic levels on all of the indices remain overbought but have yet to flash bearish crossover signals that would heighten concerns.

Data

The data is largely neutral, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:+20.48/+15.54 NYSE:+16.15/+20.82 NASDAQ:+26.19/+12.19). The OpenInsider Buy/Sell Ratio (38.7) and Equity Put/Call Ratio (0.62) are neutral as well.

We do find positive signals coming from the Total Put/Call (contrary indicator) at 1.11 as the crowd is long puts while the OEX P/C at 0.73 finds the pros long calls.

Valuation

The forward P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $162.92 per share is 16.6x, versus the "rule of 20" implied fair value of 16.9x.

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