All of the major equity indices closed lower Wednesday with heavy volume and negative breadth.
Each of the indices closed below their near-term support levels with the S&P 500 closing below its long-term uptrend line.
All the indices are below their 50-day moving averages while the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq are negative.
High "volume at price" (VAP) levels are seen as supportive on the S&P, DJIA, Nasdaq 100 and S&P MidCap 400 while resistant on the rest.
We would note, however, all but the Nasdaq 100 now find their respective stochastic levels oversold. Granted none have registered "bullish crossover signals" at this point and can remain oversold for extended periods. Still, they offer a slight bit of encouragement, in our opinion.
Some data is suggesting potential for a pause/bounce within the current downtrends via the one-day McClellan Overbought/Oversold Oscillators that are now very oversold on the All Exchange and Nasdaq while the NYSE is only a few points from being in the same condition (All Exchange:-100.01 NYSE:-97.81 NASDAQ:-105.37). This does not suggest they cannot become more oversold. Yet it does imply some moderation of near-term risk.
The detrended Rydex Ratio (contrary indicator) is a neutral +0.22 as is the percentage of S&P 500 stocks trading above their 50-day moving averages sliding to 32.3%.
The AAII Bear/Bull Ratio (contrary indicators) remains neutral at 30.33/32.30 with the Investor's Intelligence Bear/Bull Ratio (contrary indicator) bearish at 16.8/55.1.
The Open Insider Buy/Sell Ratio remains neutral at 60.1.
Valuation is appealing given the sizable lift in forward 12-month earnings estimates for the S&P 500 from Bloomberg to $175.24 from $170.55 due to the roll off of Q3 2019 and addition of Q3 2020 estimates. This leaves the S&P's forward P/E multiple at 16.5x while the "rule of twenty" finds fair value at 18.4x.
The 10-year Treasury yield stands at 1.6%.
The earnings yield is 6.06%.
We are maintaining our near-term "neutral/negative" outlook for the major equity indices with the caveat that oversold conditions may offer a pause/bounce within the current downtrends.