Negative Events Pile Up on the Charts

 | Jun 26, 2018 | 11:00 AM EDT
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Well, that certainly didn't help.

On Monday morning we had downgraded our near-term outlook for the major equity indices to "neutral/negative" reflecting Friday's stock market action.

Now, following a host of negative events on Monday's selloff, the data is not sending any strong signals suggestive of a bounce.

5 Support Levels Breached

All of the indices closed lower Monday with broadly negative internals on the NYSE and NASDAQ as volumes declined from the prior session. Multiple negative technical events occurred.

The S&P 500 (see below), Dow Jones Industrial Average, Nasdaq Composite, Nasdaq 100 and Dow Jones Transports all broke below near-term support with the Transports also closing below its 50-day moving average.

Source: Worden

The S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index closed above support but below their near-term uptrend lines turning said trends to neutral from positive.

The S&P, DJIA, Nasdaq Composite, Nasdaq 100, and Transports (see below) are now in short-term downtrends. The rest are neutral.

Source: Worden

Also, the cumulative advance/decline lines for the All Exchange and NASDAQ turned negative with the NYSE's remaining neutral.

Looking for a Bounce

The data is shy of suggesting a meaningful bounce is at hand as, in spite of the degree of decline, the McClellan one-day Overbought/Oversold Oscillators remain neutral (All Exchange:+19.52/-57.91 NYSE:+32.17/-53.64 NASDAQ (+11.86/-64.19). While the 21-day readings are oversold, it is usually the one-day levels that are prescient regarding bounce signals.

The Total Put/Call Ratio (contrary indicator at 1.1) is bullish as the crowd increased its put exposure while the pros flipped to being long calls at a 0.87 OEX P/C. Still, sentiment has yet to show a notable increase in fear as the Rydex Ratio (contrary indicator) still finds the leveraged ETF traders heavily on the long side at 1.59.

Valuation Multiple

The S&P 500, based on the forward 12-month consensus earnings estimates from Bloomberg of $163.49 per share, is trading at a 16.6x multiple versus the "rule of 20" implied fair value of 17.1x.

Outlook

While some of our concerns regarding the level of chart extensions have moderated to some degree, the overall state of the charts and data suggest we maintain our near-term "neutral/negative" outlook for the major equity indices.

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