The appearance of a shift in sector leadership we discussed here continues. However, all trends and support levels on the major equity indices remain intact.
The data, while generally neutral, show Investment advisor sentiment and valuation still flashing yellow warning lights.
On the Charts
The equity indices closed lower Thursday with negative internals on the NYSE and Nasdaq. Most indices closed near the midpoints of their intraday ranges as some last-hour trading lifted them off their lows.
No violations of support or trend were violated although the Nasdaq Composite and Nasdaq 100 (see above) tested support and closed below their 50-day moving averages.
As such, all the near-term trends remain neutral except for the Dow Jones Transports staying positive.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq are short-term positive with the Nasdaq still below its 50 DMA.
However, the Nasdaq's intermediate term A/D remains negative, having made a series of lower highs and lower lows since the beginning of August.
Deep Dive on Data
The data remain mixed.
The one-day McClellan Overbought/Oversold Oscillators remain neutral (All Exchange: -4.67 NYSE: -13.65 Nasdaq: +2.26).
The Open Insider Buy/Sell Ratio is also neutral but dipped again to 45.7 while the detrended Rydex Ratio (contrary indicator) remains neutral at 0.25 with the leveraged ETF traders slightly decreasing their leveraged long exposure once again.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish at 16.2/59.0 after hitting a two-year high last week at 61. We reiterate the lopsided bullish sentiment on the part of investment advisors implies a potential shift in their outlooks that could be meaningful for the markets should such a move be generated.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral at 60.4%.
The valuation gap remains extended with the S&P 500 trading at a P/E multiple of 20.9x consensus forward 12-month earnings estimates from Bloomberg of $146.50 per share while the "rule of 20" finds fair value at 19.3x.
The S&P's forward earnings yield is 4.36% with the 10-year Treasury yield at 0.68%.
While we think that a shift in sector leadership in the markets is becoming more apparent, the crowded sectors that were prior leaders combined with valuation and excessive bullish advisor sentiment suggest we maintain our current near-term "negative" outlook for markets as a whole.