The charts of the major equity indexes have finally exhibited some weakening that had failed to appear as, for the past several sessions, the data and valuation have been deteriorating. As we've been noting repeatedly, the data and valuation are giving us cause for concern.
While two of the McClellan OB/OS Oscillators are now oversold, insiders continued to increase their selling activity while the valuation gap remains notably wide, both of which have been raising yellow flags for us.
The result of Thursday's action is not enough to tilt the scales away from our current opinion that some caution is still warranted as we await better buying opportunities.
Charts Violate Some Support & Uptrends
On the charts, all the major equity indexes closed lower Thursday with negative internals on heavier trading volumes for the NYSE and Nasdaq.
All closed near their lows of the day that resulted in the S&P 500 closing below support while the Russell 2000 (see below) and Value Line Arithmetic Index closed below their near-term uptrend lines and are now neutral as the rest remain in uptrends.
Cumulative market breadth weakened as well with the advance/decline lines for the All Exchange, NYSE and Nasdaq turning negative from neutral.
No new stochastic readings were generated although all had recently yielded bearish crossover signals.
Some McClellan Oscillators Oversold
The data dashboard still finds all the 1-Day McClellan Overbought/Oversold Oscillators are now oversold on the All Exchange and NYSE as the Nasdaq's remains neutral (All Exchange: -57.1 NYSE: -71.39 Nasdaq: -47.01).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 62% and remains on a neutral signal.
Again, we would note the Open Insider Buy/Sell Ratio, that has been a cause of concern, dropped further to 20.1 as insiders have continued to increase their selling over the past few sessions and casting a darker shadow.
The Open Insider buy/sell ratio is 20.1% (bearish)
The detrended Rydex Ratio (contrarian indicator) dipped to a neutral +0.26.
This week's AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.17 as bearish sentiment declined and has shifted to neutral from bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is also neutral at 28.0/45.4.
Valuation Remains Stretched
Valuation continues to be troubling as the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 dropped further to $217.72 per share. As such, its forward P/E multiple at 18.7x remains at a significant premium to the "rule of 20" ballpark fair value of 16.3x via the "rule of 20." It remains a notable cause for concern, in our view.
The S&P's forward earnings yield is 5.33%.
The 10-Year Treasury yield closed higher at 3.68% and on what we see as short-term resistance. It is short-term neutral with support at 3.49% by our work.
Our Market Outlook
Recent market weakness has finally resulted in the charts displaying some softening, which has pushed some of the OB/OS Oscillators into oversold territory. However, insider selling and stretched valuation continue to suggest some more patience is needed as we await better buying opportunities.