The indices are still in downtrends while the data is split between neutral and positive readings. We haven't seen enough of a shift to alter our near-term "neutral/negative" outlook.
On the Charts
All of the indices closed lower Friday, with most closing at or near their intraday lows. Volumes rose on both exchanges, and they had negative internals. The indices also closed below near-term support and are still in downtrends and below their high "volume at price" (VAP) levels -- suggesting significant overhead resistance. The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain negative and below their 50-day moving averages and stochastic readings are oversold -- none have as yet triggered bullish crossover signals.
Data Is Still Mixed
The data remains mixed. The one-day McClellan Overbought/Oversold Oscillators are still oversold (All Exchange:-88.09; NYSE:-89.54; Nasdaq:-91.3). The detrended Rydex Ratio (-0.38), Open Insider Buy/Sell Ratio (91.8) and percentage of SPX stocks above their 50 DMAs (28.1) are all neutral.
Crowd sentiment was neutral last week, with the AAII Bear/Bull Ratio at 32.67/32.0. But the Investors Intelligence Bear/Bull Ratio (contrary indicator) was negative at 17.2/49.5, suggesting advisors remain overly bullish. We would not be surprised to see more of a shift with the release of the new data tomorrow morning.
The S&P 500 is trading at a forward P/E multiple of 16.1x consensus 12-month earnings estimates from Bloomberg that have dipped to $171.19 per share, while the "rule of twenty" fair value multiple is 17.9x, suggesting the S&P is undervalued. Of course, that is assuming the estimates will hold. The shift in valuation has largely been due to the notable drop in the 10-year Treasury yield -- to 2.14%.
The earnings yield stands at 6.22%.
Although the OB/OS data remains oversold, everything else suggests we maintain our near-term "neutral/negative" outlook for the major equity indexes.