While some of our concerns regarding the level of chart extensions have moderated, the overall state of the charts and data suggest we maintain our near-term "neutral/negative" outlook for the major equity indices.
More violations of support and trend have been registered and the data, while mixed, is not indicating any meaningful bounce is at hand.
All of the indices closed lower Wednesday and at or near their intraday lows on higher trading volume, with negative internals on the NYSE and NASDAQ.
More chart deterioration was registered as the S&P 500 (see below) closed below its 50-day moving average and on support.
The Dow Jones Industrial Average closed blow its long-term uptrend line while the Dow Jones Transports broke below another support level as well as its long-term uptrend line and 200-day moving average.
The S&P MidCap 400 Index (see below) also closed below near-term support, turning its short-term trend negative from neutral, while also closing below its 50 DMA.
So, we now find the Russell 2000 and Value Line Arithmetic Index in neutral near-term trends with the rest of the indices negative.
The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are all negative but remain above their 50 DMAs.
The data, in our view, has not yet reached levels suggesting weakness has a high probability of having been completed. While all of the 21-day McClellan Overbought/Oversold Oscillators are oversold, the 1-day readings remain neutral (All Exchange;+16.8/-75.02 NYSE:+33.06/-66.73 NASDAQ:+5.33/-87.6). In our experience, it is usually deeply oversold 1-day readings that are coincident with correction lows.
The Equity Put/Call Ratio (0.67) and OpenInsider Buy/Sell Ratio (49.0) remain neutral while the OEX P/C finds the pros have flipped again to a very bearish 2.08 versus their long call positions Wednesday morning. The Rydex Ratio (contrary indicator) still finds the leveraged ETF traders near extreme leveraged long levels at 1.7. As such, the data is too mixed to offer any strong near-term implications.
S&P 500 Valuation
The S&P 500 is trading at a P/E multiple of 16.5x the forward 12-month consensus earnings estimate from Bloomberg of $163.57 per share, versus the "rule of 20" implied fair value of 17.1x.