Several changes have occurred on the charts over the past week, mostly to the negative. Meanwhile, indicators suggest the potential for a bounce is likely to prove temporary.
Let's take a close look.
On the Charts
The past week saw several negative technical events occur on the major equity indices.
1. The DJIA, Nasdaq Composite, Nasdaq 100, Dow Jones Transports and Value Line Arithmetic Index all saw breaks below their respective support levels.
2. The S&P MidCap 400 and Russell 2000 closed below their short-term uptrend lines.
3. The Nasdaq Composite and Nasdaq 100 and Russell are now below their 50-day moving averages with the Composite and Nasdaq 100 violating their long-term uptrend lines. As such, the short-term trends find the S&P 500 (see below), MidCap 400 and Russell neutral with the rest negative.
4. Breadth has weakened, too, with the All Exchange and Nasdaq cumulative advance/decline lines negative and the NYSE's neutral.
Only the Dow Transports finds its stochastic oversold with the rest neutral.
High "volume at price" (VAP) is supportive on all but the S&P and Nasdaq Composite.
The data remains mostly neutral, including most of the one-day McClellan Overbought/Oversold Oscillators with the exception of the Nasdaq's being oversold and suggesting a bounce within that index (All Exchange:-48.39 NYSE:-29.67 Nasdaq:-66.61).
The detrended Rydex Ratio (contrary indicator) is a neutral +0.01 as is the percentage of S&P 500 stocks trading above their 50-day moving averages dipping to 66.7%.
Last Tuesday's AAII Bear/Bull Ratio (contrary indicators) turned neutral at 32.33/32.0 with the Investor's Intelligence Bear/Bull Ratio (contrary indicator) turning mildly bearish at 17.0/53.8.
The Open Insider Buy/Sell Ratio remains neutral at 43.2.
Valuation looks slightly appealing at current levels. However, estimates have continued to compress with the 12-month forward consensus earnings estimate from Bloomberg for the S&P 500 slipping to $170.57 per share, leaving the forward P/E multiple at 17.4x while the "rule of twenty" finds fair value at 18.3x.
The 10-year Treasury yield stands at 1.68%.
The earnings yield is 5.76%.
The past week has cast several clouds over the technical outlook on the charts as market breadth and forward earnings estimates for the S&P 500 have deteriorated. So, while we may see a short-term bounce implied by the Nasdaq one-day Overbought/Oversold oscillator, the shifts have been sufficient to change our near-term outlook to "neutral/negative" from "neutral."