All the equity indices closed lower Tuesday with negative internals on the NYSE and Nasdaq as trading volumes dipped.
All closed near their intraday lows but left little technical impact on the charts with the exception of the DJIA (see below) closing back below its 50-day moving average.
Regarding near-term trends, the Dow Jones Transports is positive, the S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index are negative, with the rest neutral.
The S&P 500, DJIA, MidCap 400and Value Line index have significant amounts of overhanging supply that we believe may present an important barrier to progress while the Transports have high volume support.
The cumulative advance/decline lines for the All Exchange and NYSE are Neutral with the Nasdaq's negative.
All are below their 50-day moving averages and in intermediate term downtrends from their July peaks.
The one-day McClellan Overbought/Oversold Oscillators remain neutral (All Exchange: -0.87 NYSE: -16.19 Nasdaq: +11.39).
The Open Insider Buy/Sell Ratio is neutral, lifting to 65.9 as insiders have slightly increased buying, while the detrended Rydex Ratio (contrary indicator) remains neutral at +0.72 but shows the leveraged ETF traders slightly increasing their leveraged long exposure.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a slight rise in bearish sentiment to 19.4/51.5 Tuesday. While not conclusive, it suggests there may be potential for the beginning of an important sentiment shift to the bearish camp should the markets slip further.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral at 39.2%.
Valuation Gap Remains Extended
The valuation gap remains extended, with the S&P 500 trading at a P/E multiple of 22.7x consensus forward 12-month earnings estimates from Bloomberg of $146.70 per share while the "rule of 20" finds fair value at 19.4x.
The S&P's forward earnings yield is 4.4% with the 10-year Treasury yield at 0.65%.
Tuesday's action did not present any evidence suggesting we alter our near-term "negative" outlook for the equity markets given breadth, sentiment, and valuation.