While the charts of the major equity indexes have yet to suggest an imminent reversal and relief from the selling pressure, the data is offering some hope. Intensified levels strongly suggest, in our view, some relief may well be at hand with the potential to test their resistance levels.
Our comments here Friday suggesting that likelihood did not come to fruition. However now the signals are even stronger, as discussed below.
Therefore, we are keeping our eyes open for some indication from the charts that would coincide with the data. We suspect that may come in the form of the indexes having a notable recovery from intraday lows at some point. The data suggests that may be sooner than later.
On the Charts
The major equity indexes closed lower Friday with broadly negative internals on the NYSE and Nasdaq on heavy trading volume coincident with options expiration.
All closed near their intraday lows and below support, leaving all in near-term downtrends with no suggestions that a pause/reversal is taking place at this stage.
Market breadth continued to weaken with the cumulative advance/decline lines for the All, Exchange, NYSE and Nasdaq negative and below their 50-day moving averages.
However, the stochastic levels are now extremely oversold and at levels implying relief, as noted on the charts, as they have been associated with forthcoming rallies. All are in single digits with the Nasdaq Composite (see below), Nasdaq 100, MidCap 400, S&P 500 and Value Line Arithmetic Index less than one. These levels are rare.
Source: Worden
The Data
The McClellan 1-Day Overbought/Oversold Oscillators now very oversold and in concert with the stochastic levels (All Exchange: -122.93 NYSE: -129.08 Nasdaq: -120.12).
The percentage of S&P 500 issues trading above their 50-day moving averages slipped to 32% and is also at levels suggesting a bounce.
The Open Insider Buy/Sell Ratio lifted to 55.8, staying neutral as insiders did some buying.
The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dropped to 0.7. While it remains neutral, it suggests the crowd is getting more nervous.
Last week's contrarian AAII Bear/Bull Ratio is 0.98, also stayed neutral.
The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator) remains neutral as the number of bulls and bears dropped from the prior week.
Market Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has dipped to $221.32 per share. As such, the S&P's forward P/E multiple slipped below 20x to 19.9x with the "rule of 20" finds ballpark fair value at 18.3x.
The S&P's forward earnings yield rose above 5% to 5.03%.
The 10-Year Treasury yield dropped to 1.75%. We view support for the 10-Year at 1.60% with resistance at 1.93%.
Near-Term Outlook
As our expectations for some relief from the recent market carnage have yet to appear., there are multiple data points suggesting, if we are not at a market low, we are very near one. We need the charts to confirm.
