The charts of the major equity indices have all seen further deterioration with some breaking below near-term support levels as well as their 50-day moving averages. However, much deeper oversold conditions are capable of being achieved.
On the Charts
All of the indices closed lower Friday with negative internals on the NYSE and Nasdaq as trading volumes dipped.
More damage was seen as the Nasdaq Composite (see below), Nasdaq 100, S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index closed below their respective support levels.
The MidCap, Russell and Value Line also closed below their 50-day moving averages.
So, we now find all of the eight indices we follow in short-term downtrends.
The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are now negative as well.
All of the charts are at high "volume at price" (VAP) levels seen as supportive. If they should break, it would add another negative to the equation.
The stochastic levels for the S&P, DJIA, Nasdaq Composite and 100 are oversold but are capable of becoming more so while not having yet flashed "bullish crossover" signals.
Data Is Mixed
The one-day McClellan Overbought/Oversold Oscillators are now in oversold territory (All Exchange:-63.86 NYSE:-61.75 NASDAQ:-68.06). However, we would note readings below -100 are not uncommon before a bounce appears.
The detrended Rydex Ratio (contrary indicator) at +0.1 is neutral as is last week's AAII Bear/Bull Ratio (contrary indicator) at 29.0/33.0.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish as advisors are largely bullish at 16.3/58.0.
The percentage of S&P 500 stocks above their 50-day moving averages (46.9%) is neutral as is the Open Insider Buy/Sell Ratio (37.3).
The 12-month forward consensus earnings estimate from Bloomberg for the S&P 500 dropped to $172.78 per share, leaving the forward P/E multiple at 17.0x while the "rule of twenty" finds fair value at 18.1x. This suggests the markets are somewhat undervalued.
The 10-year Treasury yield is 1.86%.
The earnings yield stands at 5.89%.
Friday's chart action combined with current data suggests we maintain our near-term "neutral/negative" outlook for the major equity indices.