The major equity indexes closed mixed Tuesday with all remaining in near-term bearish trends as sellers stayed in control. We have yet to see signs of reversal in that regard.
Meanwhile, the McClellan 1-day OB/OS Oscillators are mostly in oversold territory while Tuesday's investor sentiment numbers (contrarian indicators) (see below) found bearish sentiment so extreme that it has only been surpassed twice in the past two decades.
Yet, while some of the data is encouraging, we continue to believe technical improvements on the charts and market breadth are required before adding long positions.
Indexes Close Mixed With Downtrends Intact
Chart Source: Worden
On the charts, the indexes closed mixed Tuesday with both the NYSE and Nasdaq showing higher volume with negative internals.
The DJIA, Dow Joes Transports and Midcap 400 (see above) posted gains as the rest declined.
In fact, the S&P 500 and Nasdaq Composite closed below support, which leaves all the indexes still in their near-term downtrends that, in our opinion, should be respected until proven otherwise.
Market breadth continued to erode with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq negative and below their 50-day moving averages.
The stochastic readings are oversold on the S&P, Nasdaq Composite and Nasdaq 100 but have yet to generate bullish crossover signals.
Bearish Investor Sentiment Still at 20-Year Extreme
The data find the McClellan Overbought/Oversold Oscillators still in oversold territory on the All Exchange and NYSE with the Nasdaq neutral (All Exchange: -51.16 NYSE: -9.20 Nasdaq: -45.74).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) was unchanged at 11% and remains bullish.
The Open Insider Buy/Sell Ratio was unchanged as well at 57.0 and neutral.
The detrended Rydex Ratio, (contrarian indicator), remains on a very bullish signal but rose to -2.65. The ETF traders continue to have extended leveraged short exposure and, in our opinion, could provide a strong catalyst to the upside when supply/demand starts to shift toward demand taking control.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 2.87 and is now at a level of bearish sentiment only surpassed twice in the past two decades, those times being during the banking crisis in 2009 and the COVID pandemic in 2020.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 41.8/25.4 and also near peak levels.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped down to $232.60 per share. As such, the S&P's forward P/E multiple is 15.4x and at a discount to the "rule of 20" ballpark fair value of 16.1x.
The S&P's forward earnings yield is 6.48%.
The 10-Year Treasury yield closed higher at 3.94%. We view support as at 3.5% with resistance at 4.0%.
Market Outlook
We have yet to see signs on the charts that sellers are getting exhausted with buyers starting to take control, which we believe is required. So, despite the bullish implications from sentiment and valuation, we will wait for said signals to appear.
