All the major equity indices closed lower Friday with negative internals on the NYSE and Nasdaq as trading volumes declined from the prior session.
While not a point of great significance, we would note that the declines occurred on lighter volumes than the recent positive sessions.
While all closed at or near their intraday lows, no violations of support or trend occurred, leaving the Nasdaq Composite (see below), Nasdaq 100, Dow Jones Transports and Value Line Arithmetic Index neutral and the remainder are negative.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive but below their 50-day moving averages.
So, in our opinion, while the drops were notable on Friday, they did not alter the technical picture to a great degree. In fact, as we noted Friday, the highly overbought McClellan Oscillators were suggesting a retracement of this nature.
The data continues to send some bullish signals.
Given Friday's negative action, the McClellan one-day McClellan Overbought/Oversold Oscillators moderated to mildly overbought levels (All Exchange: +55.25 NYSE:+55.52 Nasdaq:+56.33). They do continue to imply some further consolidation is possible.
The Open Insider Buy/Sell Ratio (se below) dropped to 179.2 but continues to find insiders aggressively buying their own stock.
The Open Insider Buy/Sell Ratio is 179.2% (bullish)
The detrended Rydex Ratio (contrary indicator) is likely little changed as declines may not have altered their excessively short exposure levels.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is bullish at 2.0%.
The S&P 500 is trading at a P/E of 15.9x consensus forward 12-month earnings estimates from Bloomberg of $159.97 per share, compared to the "rule of 20" fair value multiple of 19.2x, still suggesting the index remains undervalued.
The S&P's forward earnings yield is 6.3%, while the 10-year Treasury yield is at 0.75%.
Friday's somewhat expected retracement of recent gains did not alter the technical aspects of the charts while the data, in our view, is still sending some encouraging signals. We maintain our near-term "neutral/positive" outlook as a result.