The intensity of the selling on Friday was not sufficient to violate any of the near-term support levels. Yet all remain in short-term downtrends with very negative breadth.
However, we find the data quite encouraging as several of the indicators are at extreme levels historically associated with market bottoms.
So what gives?
Let's take a closer look at the charts and data and make a determination.
On the charts, all of the major equity indices closed lower Friday with negative internals on heavy trading volume. However, as intense as the selling pressure was, no short-term support levels were violated as all were tested successfully. That was a shift from the action earlier in the week.
Nevertheless, all of the short-term downtrends are intact as market breadth is notably negative. The negative breadth could be viewed as encouraging, though, as the % of S&P 500 stocks trading above their 50-day moving averages (see below) shrank to 10.5%, the lowest level in two years and at a point frequently seen at market lows.
Insiders Continue Buying Spree
The data continues to suggest the recent panic-selling may be near completion. Insiders continue to gobble up stock with the greatest intensity since September 2015, a market low, with a 189.6 Open Insider Buy/Sell Ratio while the detrended Rydex Ratio (contrarian indicator; see below) finds the leveraged ETF traders extremely leveraged short at -1.64. All of the McClellan Overbought/Oversold Oscillators are oversold as well (All Exchange:-66.9/-115.54 NYSE:-65.13/-105.24 NASDAQ:-69.94/-127.13).
Seasonality still offers a ray of hope. The November-to-April period coming out of a midterm election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative.
Valuation, assuming current estimates hold, is below implied fair value. The S&P 500 is trading at a forward P/E multiple of 15.4x consensus 12-month earnings estimates of $172.32 per share versus the "rule of 20" implied fair value multiple of 16.9x.
The "earnings yield" stands at 6.48%.
While the data suggests a buying opportunity is unfolding, the charts and market breadth have yet to send signals that would confirm. Until that happens, we are forced to keep our near-term "neutral/negative" outlook for the major equity indices in place.
If resistance is violated on a closing basis, we may very well have a brighter outlook Tuesday.