With volumes flat on the NYSE and declining on the Nasdaq, and despite the fact that no significant technical events have occurred, we are becoming more cautious. Let's take a look at the charts and indicators.
On the Charts
All of the indexes closed lower on Wednesday with negative internals. No technical events were generated on the charts, leaving all of them in near-term neutral trends, except for the Dow Jones Industrials, which is still negative.
The cumulative advance/decline lines are still neutral and above their 50-day Moving Averages on the NYSE and All Exchange, while the Nasdaq's is negative and below its 50 DMA. The primary reasons for our turning "neutral/negative" in our outlook is that the major index ETFs have shown poor volume since the beginning of the month -- with advances on lighter volume while declines see volume accelerating. It suggests distribution.
The index ETFs violated high "volume at price" levels to the downside about two weeks ago and are now approaching high "volume at price" support levels. Typically, we would expect those supports to hold, but given the overhanging trade war issues, if those supports are violated we suspect a notable decline may be generated. This may be speculation, but risk outweighs reward at this point, in our opinion.
The data is neutral, including the 1 day McClellan Overbought/Oversold (All Exchange:-36.59; NYSE:-32.7; Nasdaq:-40.94). The detrended Rydex Ratio (-0.57), Open Insider Buy/Sell Ratio (49.4) and percentage of SPX stocks above their 50 DMAs (47.3%) are all neutral as well.
Sentiment has turned more neutral, with the new AAII Berar/Bull Ratio at 27.67/37.0. But the Investors Intelligence Bear/Bull Ratio (contrary indicator) remains negative at 17.5/51.4.
The S&P 500 is trading at a forward P/E multiple of 16.7x consensus 12-month earnings estimates from Bloomberg of $171.47 per share, versus the "rule of twenty" fair value multiple of 17.6x. Our prior valuation concerns when the S&P was trading at fair value a few weeks ago are again at ease, assuming this holds.
The earnings yield stands at 6.0%.
We rarely make shifts in our outlook without support from the charts and data. But in this case, we believe extraneous circumstances may have a notable impact not yet priced in by the markets.