While we have a notably lower open and the charts have yet to signal a break from their recent vertical declines, we are seeing data at very extreme levels that have been found near market climax lows.
Therefore, we are shifting our near-term outlook for the major equity indices.
On the Charts
All the major equity indices sank again Thursday with broadly negative internals. All broke below their respective support levels and remain in short-term downtrends as do the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
Also, all closed at or near their intraday lows, showing no buying interest at the end of the day.
However, trading volume on the NYSE surged above 7 billion shares, suggesting to us that a wholesale dumping of stocks was engaged in a crowd panic. This action, while not conclusive, is often seen near market lows as supply nears exhaustion.
And while we would reiterate that no technical bottoming signals have occurred, all the stochastic levels are now in low single digits and extremely oversold.
While there are no chart bottoming signals as of yet, the data, on the other hand, is sending some very positive signals.
The All Exchange McClellan ratio adjusted 1-day OB/OS Oscillator is -169.7 (very bullish) and 21 day -60.7 (bullish).
All the McClellan one-day McClellan Overbought/Oversold Oscillators are extremely oversold and at the deepest levels seen in over two years. (All Exchange:-131.71 NYSE:-150.33 Nasdaq:-118.74).
The Open Insider Buy/Sell Ratio has turned neutral as it has risen to 48.3 versus its prior 21.9 reading of just two days ago. It suggests insiders are seeing current prices as attractive for ownership as the crowd salvos its holdings.
The detrended Rydex Ratio (contrary indicator) has also turned neutral at 0.81 as the leveraged ETF traders have lightened up on their leveraged long exposure.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator; see below) did a flip as advisors became more bearish at 54.7/18.9. Nonetheless, this metric is also within its historically neutral range.
The Investors Intelligence weekly bear/bull reading 3-week average is 54.7/18.9 (neutral) as of 2/24.
The S&P 500 is undervalued, trading at a P/E multiple of 17.1x consensus forward 12-month earnings estimates from Bloomberg of $174.45 per share, versus the "rule of 20" fair value multiple of 18.7x.
The S&P 500 forward earnings yield is 5.86% while the 10-year Treasury has dropped to 1.3% in a flight to safety.
We are shifting our near-term outlook for the major equity indices to "neutral" from "neutral/negative."