Our expectations for a bounce failed to appear Tuesday as several support levels and 50-day moving averages were violated, leaving each index in a near-term bearish trend, as market cumulative breadth remains negative.
Yet despite the dismal message from the charts, the data that suggested some relief Tuesday morning has intensified even further. Both the McClellan 1-day OB/OS Oscillators and stochastic levels are extremely oversold and suggesting Tuesday's close may turn out to be the near-term lows of the recent correction.
While improvements on the charts and market breadth are sorely needed, we speculate some short-term relief is forthcoming. Whether or not it will be sustainable has yet to be determined.
On the Charts
Source: Worden
All the major equity indexes closed lower Tuesday with negative internals on higher volume for the NYSE and Nasdaq.
All closed at or near their intraday lows with the S&P 500, DJIA, Nasdaq Composite (see above), Dow Jones Transports and Russell 2000 closing below their support levels.
Also, the S&P 500, DJIA and Nasdaq Composite dropped below their 50-day moving averages.
Needless to say, the charts have yet to create positive shifts of trend while cumulative market breadth for the All Exchange, NYSE and Nasdaq remain bearish.
However, the stochastic levels are extremely oversold and in the low single digits across the board. While they have yet to register bullish crossover signals, they imply recent market weakness may have culminated.
Market Data
The data that suggested a bounce Tuesday, which did not occur, has intensified its positive signals even further.
The McClellan Overbought/Oversold Oscillators are now extremely oversold and implying a bounce (All Exchange: -111.51 NYSE: -124.31 Nasdaq: -103.9).
The % of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 48% and remains neutral versus its prior cautionary implication at 84% near the market's recent highs.
The Open Insider Buy/Sell Ratio rose to 62.4%, staying neutral as well, as insiders did some buying on weakness.
The detrended Rydex Ratio (contrarian indicator) is unchanged at -1.01 is mildly bullish.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.25 and remains mildly bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 29.6/45.1, neutral with an increase in bears.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped to $232.47 per share. As such, the valuation spread narrowed further but is still at a slight premium to ballpark fair value via the "rule of 20" with the S&P's forward P/E multiple down to 17.1x versus 16.9x.
The S&P's forward earnings yield is 5.82%.
The 10-Year Treasury yield closed unchanged after testing resistance at 3.11% and is still within what we view as its current trading range with support at 2.92% and resistance at 3.16%.
Our Market Outlook
While the charts and market breadth lack signs of relief, the data are now strongly suggesting some relief over the very near term. Yet, its sustainability has yet to be determined as chart and breadth need to see some significant repair to support the data.
