While Thursday's market declines were sizable, all but one of the indices managed to hold their respective support levels (see below).
Meanwhile, the data has taken on a more positive tone suggesting some near-term relief.
On the charts, all of the indices did close notably lower Thursday with negative internals on higher trading volumes. And while that may cause more fear to ripple through the "crowd," we actually see signs of encouragement as follows:
1. All of the indices held their respective support levels with the one exception of the Dow Jones Transports (see above). Yet even in that case, it managed to hold above the lows of the initial selloff.
2. The S&P 500, Nasdaq Composite, Nasdaq 100 and Value Line Arithmetic Index closed on support while the S&P MidCap 400 Index tested support but closed above. In all of these cases, in spite of the selling pressure, they managed to make higher lows than those seen at the lows of the recent correction.
3. The % of S&P 500 stocks trading above their 50-day moving average (contrary indicator) remains very depressed at 26.2%.
Meanwhile, the data has also become more encouraging.
All of the McClellan Overbought/Oversold Oscillators are back in oversold territory (All Exchange:-56.26/-81.48 NYSE:-59.23/-79.17 NASDAQ:-54.91/-84.83). All of the Put/Call Ratios are bullish as well.
The contrary indicators of the Total P/C and Equity P/C find the crowd very nervous and long puts at 1.3 and 0.73, respectively, while the OEX P/C finds the pros have jumped the fence and are now long calls at 0.98.
The OpenInsider Buy/Sell Ratio is 126.9 (bullish)
Another point to stress is the continuation of the insider buying spree that shows insiders buying their stock as the crowd dumps theirs to levels not seen since January 2016, which marked a market low, via the Open Insider Buy/Sell Ratio at 126.9 (see above).
We strongly suggest taking a look at this chart.
Valuation remains below implied fair value. The S&P 500 is trading at a forward P/E multiple of 16.1x 12-month earnings estimates of $172.37 per share, versus the "rule of 20" implied fair value of a 16.8X.
The "earnings yield" stands at 6.22%.
The current state of the charts and data suggest we maintain our near-term "neutral/positive" outlook for the major equity indices. In fact, it may in retrospect turn out to be viewed as having been a buying opportunity.