The index charts saw a mix of bullish and bearish technical events Friday while cumulative market breadth, which has been an important concern for us, weakened further.
However, some of the data are starting to suggest the potential for a pause or near-term bounce for equities. Should that transpire, it would be extremely important, in our opinion, to see some notable improvement in market breadth for us to consider if a pause/bounce could be sustainable.
On the Charts
The major equity indexes closed mostly lower Friday with negative internals on the NYSE as the Nasdaq saw negative breadth but slightly positive up/down volume. Most closed near their lows of the session.
However, both the Nasdaq Composite and Nasdaq 100 (see above) posted new closing highs.
On the other hand, the DJIA closed below support that altered its near-term trend to negative from neutral.
As such, the chart trends remain mixed with the Nasdaq Composite, Nasdaq 100 and Value Line Arithmetic Index positive, the DJIA and Russell 2000 negative and the rest neutral.
As we have been stressing in our recent comments, cumulative market breadth has been weak and weakened further Friday. Cumulative breadth remains negative on the All Exchange, NYSE and Nasdaq while the All Exchange joined the Nasdaq in trading below their 50-day moving averages. We are of the opinion some notable improvement in market breadth would be required to feel more sanguine regarding the macro-outlook.
No stochastic signals were generated.
The data find the McClellan 1-Day Overbought/Oversold Oscillators moving deeper into oversold territory and implying some potential for an oversold bounce or pause in weakness for the near-term (All Exchange: -74.41 NYSE: -79.77 Nasdaq: -69.54).
Also offering a little hope was the detrended Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipping to 1.15 but remaining inside bearish territory. However, they are lightening up on their leveraged long exposure.
Also, the Open Insider Buy/Sell Ratio lifted to 39.1 as insiders improved their buying appetite but remains neutral. Thus, the Rydex/OIBS dynamic moved in a more encouraging direction.
Last week's contrarian AAII Bear/Bull Ratio (0.65) remained neutral as did the Investors Intelligence Bear/Bull Ratio (22.3/56.5) (contrary indicator).
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has lifted to $214.15 per share. As such, the S&P's forward P/E multiple is 21.9x with the "rule of 20" finding fair value at approximately 18.5x.
The S&P's forward earnings yield is 4.56%.
The 10-Year Treasury yield closed at 1.54% and below support. We view resistance at 1.59% and new support at 1.5%.
While the data are suggesting a bounce, we need to see some real improvement in market breadth to warrant a change in our near-term macro-outlook for equites from "neutral."