Some calming of the waters may be at hand.
While several charts of the major equity indices suffered damage in Thursday's selloff, we have reason to expect some pause or possible bounce.
The Overbought/Oversold oscillators are now nicely oversold, leveraged ETF traders have backed off of their heavily leveraged long exposure while the 10-year Treasury yield hit our expected move to 1.5%, suggesting a possible near-term peak in yield and low in price.
However, insider buying remains absent as insiders have been active sellers over the past few weeks.
On the Charts
All the major equity indices closed lower Thursday with very negative internals on the NYSE and Nasdaq. All closed at or near their intra-day lows with the S&P 500 ( see above), DJIA, Nasdaq Composite and Nasdaq 100 closing below support.
The S&P and Nasdaq Composite also broke below their near-term uptrend lines with the S&P neutral while the Nasdaq 100 is now negative.
The DJIA, MidCap 400 and Value Line Arithmetic Index gave bearish stochastic crossovers as well.
So, regarding trend, the S&P and Nasdaq Composite are neutral, the Nasdaq 100 and Russell 2000 negative with the rest positive.
Market breadth deteriorated with the All Exchange, NYSE and Nasdaq cumulative advance/decline lines all negative but above their 50-day moving averages.
Data May Be Offering Some Encouragement Now
The McClellan one-day Overbought/Oversold Oscillators are back in oversold territory, implying a pause or bounce (All Exchange: -86.81 NYSE: -77.46 Nasdaq: -94.2).
Unfortunately, the Open Insider Buy/Sell Ratio has yet to see insiders step up to the buying window at a bearish 16.9. We need to see improvement in that metric.
On the positive side, the leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator) dropped to a neutral 0.9 as they lightened their leveraged long exposure.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) remained on a bearish signal at 18.1/59.1.
Valuation Still Appears Extended
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg lifting to $172.83 per share leaves the S&P's forward P/E multiple at 22.2x while the "rule of 20" finds fair value at 18.5x. Again, the valuation spread has been consistently wide over the past several months while the forward estimates have continued to consistently rise.
The S&P's forward earnings yield is 4.51%.
Importantly, the 10-year Treasury yield rose to 1.51%, fulfilling our expectation of a move to that level. Now that it has been achieved, we suspect the recent drop in price for the 10-year may now abate for the near term.
The Rydex improved slightly with the OB/OS oversold, suggesting a pause or bounce for the markets as the drop in the 10-year may be largely completed. Still, insider buying remains absent.