Wednesday saw a volatile session after the release of the FOMC meeting notes. However, the initial selloff saw some buying interest near the close that pared losses from the intraday lows. Nonetheless, some of the index charts suffered technical damage as others held, leaving the near-term trends a mix of negative, neutral and bullish.
On the Charts
The major equity indices closed lower Wednesday with negative internals on the NYSE. The Nasdaq had negative breadth but positive up/down volume as trading volumes rose on both exchanges.
The impact of the volatility was not equal across the board as some indices broke while others held.
On the negative side, the S&P 500 (see below) closed below its near-term uptrend line and is now neutral while the DJIA closed below support and its 50-day moving average. The MidCap 400 closed below its 50 DMA as well.
The Nasdaq Composite, Nasdaq 100, Value Line Arithmetic Index and Russell 2000 tested their near-term uptrend lines successfully while closing nicely above their intraday lows with no violations of support.
So, the trends are now near-term negative on the DJIA and Dow Jones Transports, neutral for MidCap 400 and S&P 500 and positive on the rest.
Cumulative breadth weakened to neutral on the NYSE and Nasdaq but remains positive on the All Exchange with all staying above their 50 DMAs.
No stochastic signals were generated.
The McClellan 1-Day Overbought/Oversold Oscillators remain neutral (All Exchange: -2.97 NYSE: -16.84 Nasdaq: +7.94).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipped to 1.51 but remains in bearish territory.
This week's contrarian AAII bear/bull ratio (22.31/40.24) turned mildly bearish as bears declined while bulls increased as was the case also for the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.2/54.5, which remains on a bearish signal.
The Open Insider Buy/Sell Ratio edged up to 20.7 but remains bearish as insiders have yet to show any notable buying interest.
Valuation continues to appear extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg of $191.76 per share. This leaves the S&P's forward P/E multiple is 22.0x while the "rule of 20" finds fair value at 18.4x. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
The S&P's forward earnings yield is 4.54%.
The 10-year Treasury yield rose to 1.57% and above what we saw as resistance at 1.55%. We now view support at 1.5% and resistance at 1.6%. We would note the 10-year yield remains in a near-term downtrend from its late March peak. We continue to believe the moves in the 10-year yield may well have the greatest influence over the near-term action on the equity indices.
While Wednesday's action was a bit of a roller coaster ride, we believe that our speculation on market rotation is ongoing, supported by the diverse index response. We are maintaining our current near-term "neutral/positive" macro-outlook for equities.