The technical damage was significant Tuesday.
The salvo in stocks pushed all the charts of the major equity indexes below support and their near-term downtrend lines and they are now negative versus their prior neutral trends. Market cumulative breadth deteriorated as well, turning all neutral from bullish.
The only green lights on the data dashboard following the steep selloff are coming from the contrarian investor sentiment readings that show high levels of fear (see below) from investors.
While we are not sellers, we believe waiting for some stabilization is necessary before adding to equities.
On the Charts
All the major equity indexes closed notably lower Tuesday in response to higher-than-expected CPI numbers with very negative internals on the NYSE and Nasdaq.
Selling pressure persisted throughout the session, leaving all the charts below their support levels and back below their near-term downtrend lines and are now near-term negative.
Cumulative market breadth took a hit as well as the advance/decline lines for the All Exchange, NYSE and Nasdaq turned neutral from bullish and blow their 50-day moving averages.
The stochastic readings are neutral across the board with no implications of bullish crossover signals at hand.
The data unfortunately, is mostly neutral except for investor sentiment.
The McClellan Overbought/Oversold Oscillators are still neutral and lack bounce signals (All Exchange: -28.1 NYSE: -31.04 Nasdaq: -25.4).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) took a significant drop from 72% to 37% yet remains neutral.
The Open Insider Buy/Sell Ratio slipped to 50.9%, staying neutral.
However, the detrended Rydex Ratio (contrarian indicator) remains on a green light at -1.67 as the typically wrong leveraged ETF traders still have deeply leveraged short exposure.
Also, this week's AAII Bear/Bull Ratio (contrarian indicator) (see below) rose notably to 2.16 and is now on a very bullish signal with bears outnumbering bulls by more than 2:1.
The AAII Bear/Bull Ratio is 2.16 (Very Bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 29.7/29.7 and neutral.
Market Valuation Becomes More 'In Line'
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500, slipped to $232.73 per share. As such, its forward P/E multiple is 16.9x and now more in line with the "rule of 20" ballpark fair value at 16.6x.
The S&P's forward earnings yield is 5.92%.
The 10-Year Treasury yield closed higher at 3.42%. We continue to view support at 3.08% with resistance at 3.48%.
Our Near-Term Outlook
Tuesday's dramatic turn in the markets created enough damage to suggest that, while a buying opportunity may be near at hand, some stabilization on the charts combined with supportive data may be required before a short-term bottom has been achieved. We have not been sellers.