While the market digests the latest PPI numbers, let's take a spin around the charts and data.
Of significance from Wednesday's session, and discussed below, two index charts closed below their respective support levels. This now leaves the near-term trends on the charts a mix of bullish, bearish and neutral projections. Cumulative market breadth weakened, leaving all the advance/decline lines in bearish patterns.
Meanwhile, a contrarian indicator has changed to bearish from neutral.
We cannot conclude, based on the evidence, that the current correction has seen its lows established.
Two Indexes Violate Support
Chart Source: Bloomberg
On the charts, the major equity indexes closed mixed Wednesday with negative NYSE and Nasdaq internals on higher volume.
Most closed near their lows of the day as the S&P 500, Nasdaq Composite and Nasdaq 100 posted gains and the rest declined.
The charts saw the MidCap 400 and Russell 2000 (see above) close below support. This leaves only the Nasdaq Composite in an uptrend with the DJIA, Dow Jones Transports and Midcap 400 bearish and the rest neutral.
Cumulative market breadth also weakened as the NYSE advance/decline line shifted back to bearish as is the case for the All Exchange and Nasdaq.
No stochastic signals were generated.
Detrended Rydex Ratio Turns Bearish From Neutral
The data remain largely neutral with one exception.
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: -30.83 NYSE: -30.13 and Nasdaq: -31.97).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) slipped to 32%, staying neutral.
The Open Insider Buy/Sell Ratio rose to 47.8%, staying neutral as well.
However, the detrended Rydex Ratio (contrarian indicator) is now bearish versus its previous neutral status rising to 1.04% as the leveraged ETF traders appear to be "buying the dip." We view it as another cautionary signal.
The detrended Rydex Ratio is 1.04 (bearish)
Leveraged ETF sentiment (contrarian indicator) is 19.7% and neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 0.93, also staying neutral.
The new Investors Intelligence Bear/Bull Ratio (contrary indicator) remains neutral at 48.3%.
S&P 500 Overvalued
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has dropped to $232.54 per share. With its forward P/E multiple at 19.2x and still well above the "rule of 20" ballpark fair value at 15.8x, it continues to leave little room for error.
The S&P's forward earnings yield is 5.21%.
The 10-Year Treasury yield closed lower at 4.25%. Support is 4.12% with resistance at 4.32%.
Bottom Line
As we digest the PPI report, we continue to view the weak charts and market breadth combined with overvaluation cautiously for the near term until such evidence is presented to suggest otherwise. Until then, we are evaluating positions on a case-by-case basis while also honoring sell signals.
