Current conditions continue to suggest some bounce potential for the markets. Still, valuation and psychology remain cautionary and cumulative breadth deteriorated further Friday.
Where does this all leave us?
Let's take a close look at the charts and data.
On the Charts
The S&P 500 (see below), DJIA and Dow Jones Transports posted minor gains Friday as the rest registered losses on the day. Internals were negative on the Nasdaq while the NYSE saw negative breadth but positive up/down volumes.
All occurred on lighter trade volumes. No violations of support or trend were registered.
However, the Nasdaq Composite, Nasdaq 100 and Value Line Arithmetic Index closed below their 50-day moving averages, leaving only the S&P, DJIA and Dow Transports above that metric.
The Transports is the only chart in an uptrend with the S&P MidCap 400 and Russell 2000 negative and the rest neutral.
Cumulative breadth deteriorated further with the All Exchange, NYSE and Nasdaq negative and below their 50-day moving averages.
Stochastic levels are oversold but have yet to generate bullish crossover signals.
Data Remain Mixed
The one-day McClellan Overbought/Oversold Oscillators remain oversold and continue to suggest a bounce, although none came to fruition on Friday (All Exchange: -65.87 NYSE: -70.63 Nasdaq: -62.27).
The Open Insider Buy/Sell Ratio is neutral, lifting to 59.2, while the detrended Rydex Ratio (contrary indicator) remains neutral at 0.3 with the leveraged ETF traders further reducing their leveraged long exposure.
However, last week's Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.2/60.0 was unchanged, implying investment advisors remained excessively bullish. New data for advisor sentiment should be released Tuesday.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral as well at 53.1%.
The valuation gap remains extended, despite recent declines, with the S&P 500 trading a P/E multiple of 22.9x consensus forward 12-month earnings estimates from Bloomberg of $146.14 per share while the "rule of 20" finds fair value at a multiple of 19.3x.
The S&P's forward earnings yield is 4.37% with the 10-year Treasury yield at 0.67%.
We have yet to see enough of a shift in the weight of the evidence to alter our current "negative" near-term outlook for the equity markets.