The charts have suffered some damage.
Several support levels and near-term uptrend lines of the major equity indices were violated Thursday as cumulative breadth declined as well.
And then there's that nagging valuation thing.
Given the shift in the charts and breadth combined with valuation issues, we are now altering our near-term outlook.
On the Charts
All the equity indices closed lower Wednesday with negative internals on the NYSE and Nasdaq as all closed near their intraday lows.
The action resulted in the S&P 500 ( see above), DJIA, S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index closing below their near-term uptrend lines, which are now in neutral trends versus their prior positive slopes.
Also, the DJIA, Nasdaq Composite, Nasdaq 100, MidCap 400 and Value Line Arithmetic Index closed below their respective support levels.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turned negative as well with only the Nasdaq remaining above its 50-day moving average.
The net result is we would be remiss in our disciple if we did not acknowledge the nature of the alteration in the charts that have now dimmed their previous positive implications.
The data remain mostly neutral.
The one-day McClellan Overbought/Oversold Oscillators moved into oversold territory on the All Exchange and NYSE but remains neutral on the Nasdaq (All Exchange: -50.08 NYSE: -66.86 Nasdaq: -36.88).
The Open Insider Buy/Sell Ratio continue to be neutral at 56.1 as insiders remain evenly balanced between purchases and sales of their own stock as is the detrended Rydex Ratio (contrary indicator) +0.17 with the leveraged ETF traders riding the fence.
This week's AAII Bear/Bull Ratio (contrary indicators) at 48.9/26.37 continued to send a bullish message as the crowd has yet to embrace the market's strength from the March lows.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is also neutral at 59.8%.
Valuation continues to be our greatest concern with the S&P 500 trading at a P/E of 21.7x consensus forward 12-month earnings estimates from Bloomberg of $129.97 per share versus the "rule of 20" fair value multiple of 19.4x, suggesting the index remains overvalued.
The S&P's forward earnings yield is 4.61% with the 10-year Treasury yield at 0.65%.
Given the shift in the chart picture, breadth deterioration and valuation juxtaposed with the data and sentiment readings, we are changing our near-term outlook to "neutral" from "neutral/positive" for the major equity indices.