We had been of the opinion that the markets appeared to be trying to establish some degree of stabilization from the recent slide. However, with all the trends now negative after Friday's slide, we are back in a position that requires some technical improvement on the charts as well as market breadth before approaching the long side again.
Some Supports Break With All Trends Negative
On the charts, all the major equity indexes closed lower Friday with negative internals on the NYSE and Nasdaq on higher trading volume.
The session's close found all near their intraday lows with the S&P 500 (see above), Nasdaq Composite, Nasdaq 100 and Russell 2000 closing below support that left all the indexes back in near-term negative trends.
Cumulative market breadth weakened as well with the NYSE advance/decline line joining the All Exchange and Nasdaq with negative breadth.
All stochastic levels are neutral and lack near-term implications.
Data Mostly Neutral Except for Investor Sentiment
The data find the McClellan Overbought/Oversold Oscillators remaining mostly neutral except for the NYSE moving into oversold territory (All Exchange: -42.4 NYSE: -55.52 Nasdaq: -35.01).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped back to 11% and remains bullish.
The Open Insider Buy/Sell Ratio dropped to 57.0 as insiders pulled back further from their buying activity from two weeks ago.
The detrended Rydex Ratio, (contrarian indicator), remains on a very bullish signal but rose to -2.92. The ETF traders continue their extended leveraged short exposure, and in our opinion, will continue to need to cover. We continue to view it as a potentially positive catalyst.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 2.63 and is still on a very bullish signal as well with bears outnumbering bulls by more than 2 to 1.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was 34.3/25.4 and also bullish.
Market Trading at a Discount
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped down to $233.05 per share. As such, its forward P/E multiple is 15.6x and at a discount to the "rule of 20" ballpark fair value of 16.1x.
The S&P's forward earnings yield is 6.4%.
The 10-Year Treasury yield closed higher at 3.88%. We view support as at 3.5% with resistance at 4.0%.
Our Near-Term Market Outlook
Friday's slide, having turned all the near-term chart trends back to negative, stuck a fork in our speculation that the markets were trying to establish some degree of stability after last month's carnage. With market breadth negative as well, investor sentiment data is not putting enough weight on the scales to warrant maintaining said assumption. We are back in the position requiring more positive market action being necessary to suggest buying can be done with some confidence.