While market data continues to send a generally neutral message, enough evidence is present now to alter out near-term outlook for the major equity indices.
Let's present the evidence.
On the Charts
All of the indices closed lower Thursday.
The NYSE saw negative breadth but positive up/down volume while the Nasdaq was negative on both counts.
Trading volumes rose on both exchanges from the previous session.
Technical events of importance were generated on the S&P MidCap 400 (see below), which closed below support and is now in a negative near-term trend as is the Dow Jones Transportation index.
The S&P 500, Nasdaq Composite and Nasdaq 100 flashed "bearish stochastic crossover" signals while the Nasdaq indices closed below their near-term uptrends, which shifts said trends to neutral from positive.
So, only the S&P and DJIA remain in uptrends, the Transports and MidCap are negative and the rest neutral.
Cumulative breadth deteriorated Thursday as well, turning the advance/decline lines for the All Exchange, NYSE and Nasdaq to negative from neutral.
The VIX, as we have discussed recently, remains quite cautionary, in our opinion.
The data remains generally neutral.
The one-day McClellan Overbought/Oversold Oscillators are neutral on the All Exchange and Nasdaq but mildly oversold on the NYSE (All Exchange:-39.15 NYSE:-50.62 Nasdaq:-30.57).
The detrended Rydex Ratio (contrary indicator) is neutral at +0.73 while this week's AAII Bear/Bull Ratio (contrary indicators) remains neutral at 25.0/38.0.
However, the Investor's Intelligence Bear/Bull Ratio (contrary indicator) continues to be bearish at 118.1/57.1, suggesting an excess of bullish sentiment/complacency on the part of investment advisors.
The percentage of S&P 500 stocks trading above their 50-day moving averages is a neutral 63.0% as is the Open Insider Buy/Sell Ratio at 44.1.
Valuation is at fair value with forward 12-month earnings estimates for the S&P 500 continuing to fade to $171.66 per share via Bloomberg. This leaves the forward P/E multiple at 18.1x while the "rule of twenty" finds fair value at 18.2x.
The 10-year Treasury yield is 1.77% with the earnings yield 5.53%.
The deterioration on the charts combined with weakening breadth, the cautionary VIX and further decline in forward earnings estimates are now sufficient to shift our near-term outlook for the major equity indices to "neutral/negative" from "neutral."