Welcome to Monday and a week that historically has proven to be the worst of the year for the market.
Here's what investors and traders need to know.
All the major equity indexes closed lower Friday with negative NYSE and Nasdaq internals on heavy trading volume. Most closed near their session lows that found four of the index charts breaking below support, leaving their near-term trends a mix of neutral and bearish projections.
Cumulative market breadth remains mixed while the data dashboard is mostly neutral with one notable exception. However, the S&P 500 continues to trade at a significant premium, on a forward basis.
As such, we believe there is a lack of evidence to suggest the current market correction has been completed. We remain cautious.
Some Large-Cap Indexes Break Support
Chart Source: Worden
On the charts, the major equity indexes closed lower Friday with negative internals on heavy volume as most closed near their lows of the day.
Negative technical events occurred on the S&P 500 (see above), DJIA, Nasdaq Composite and MidCap 400 as they closed below support. The S&P, DJIA, Nasdaq Composite and Nasdaq 100 closes below their 50-day moving averages as well.
As such, none of the indexes are in bullish trends with the Dow Jones Transports and MidCap 400 bearish and the rest neutral.
Cumulative market breadth remains a mixed bag with the All-Exchange advance/decline neutral, the NYSE bullish q and the Nasdaq bearish.
The Dow Transports did register a bullish stochastic crossover but needs to violate resistance to become actionable.
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: -12.71 NYSE: -9.64 and Nasdaq: -16.43).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 33%, staying neutral.
The Open Insider Buy/Sell Ratio rose to 55.1%, staying neutral as well.
However, the detrended Rydex Ratio (contrarian indicator) is still bearish versus its previous neutral status and unchanged at 1.04% as the leveraged ETF traders continue to "buy the dip." We view it as another cautionary signal.
The detrended Rydex Ratio is 1.04 (bearish)
Leveraged ETF sentiment (contrarian indicator) is 20.6% and neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 0.93, also staying neutral.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) remained neutral at 48.3%.
Valuation Remains Cautionary
Valuation, remains a primary concern and extended, in our opinion. The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped to $232.48 per share, with its forward P/E multiple at 19.1x and still well above the "rule of 20" ballpark fair value at 15.7x. It continues to leave little room for error.
The S&P's forward earnings yield is 5.22%.
The 10-Year Treasury yield closed higher at 4.32% and at resistance. Support is 4.12% with resistance at 4.32%.
While the charts and breadth are now debatable, overvaluation and the Rydex level continue to be cautionary for the near term. We continue to honor sell signals and judge names on a case-by-case basis.