While no resistance levels were violated on the charts in mixed action Wednesday, several of the major equity indices saw significant intraday reversals with chart action, suggestive of some near-term bottoms being achieved.
Importantly, however, significant overhanging volume persists on the charts suggesting yet more work may be required to continue advancing.
Let's take a deep dive into the charts.
On the Charts
The indices closed mixed Wednesday with the DJIA, Dow Jones Transports and Russell 2000 closing lower as the rest advanced.
Internals were negative on the NYSE while the Nasdaq saw negative breadth but positive up/down volume.
Overall trading volumes increased from those of the prior session while most indices saw significant intraday reversals to the upside with the gainers closing at or near their intraday highs.
A number of the charts saw action we believe to be suggestive that some near-term bottoms have been achieved in the following fashion.
The S&P 500 (see above) tested its support successfully while closing near resistance and generating a "bullish stochastic crossover."
The DJIA had the same chart action as the S&P although closing slightly lower on the day.
The Nasdaq Composite and Nasdaq 100 both saw "bullish stochastic crossovers" as well as "bullish engulfing patterns" that occur when a stock or index opens below the prior day's open and closes above the prior day's close, with the 100 closing at resistance.
The Transports tested support and may have formed a "hammer," suggesting a washout of the sellers.
The S&P MidCap 400 saw a "bullish stochastic crossover" as well as a "bullish engulfing pattern."
The Value Line Arithmetic Index tested support successfully while forming a "hammer," also suggesting a washout of sellers.
However, no resistance levels were actually violated and, in our opinion, remain formidable.
Valuation remains compelling based on current forward earnings estimates for the S&P 500. The 12-month forward consensus earnings estimate from Bloomberg for the S&P is now $172.29 per share, leaving the forward P/E multiple at 16.7x while the "rule of twenty" finds fair value at 18.3x. This suggests valuation is considerably more appealing now than just a few weeks ago.
The 10-year Treasury yield is 1.68%.
The earnings yield stands at 5.97%.
While Wednesday's action was positive, penetrations of significant overhanging supply need to be violated before altering our near-term "neutral" outlook for the major equity indices.