While somewhat encouraged by Tuesday's action, violations of trend to the upside have yet to appear.
Importantly, the major equity indexes managed to recover most, if not all, of their losses from a very weak open Tuesday with two charts violating resistance and three forming "hammer" signals that imply some near-term lows may have been established. However, all the near-term trends remain neutral with the intermediate-term bearish.
The data is largely neutral except for sentiment (contrarian indicator) that is at decade peaks of fear while valuation has become much more reasonable, in our opinion.
We await trend reversals to become more optimistic for the near-term. Until then, trends should be respected.
What's Happening on the Charts?
The major equity indexes closed mixed Tuesday with negative NYSE and positive Nasdaq internals.
A very weak open saw enough buying interest to drive all to close near their highs of the day with the Nasdaq Composite (see above) and Nasdaq 100 closing above their near-term resistance levels.
The DJIA, Dow Jones Transports and MidCap 400 closed lower as the rest posted gains.
However, there were no violations of the near-term neutral trends that remain intact on all.
Yet more encouragement came in the form of the DJIA (see below), Transports and Value Line Arithmetic Index making "hammer" formations that suggest their near-term lows may have been established.
Market breadth remains neutral for the All Exchange, NYSE and Nasdaq as all stochastic levels are neutral as well.
Data Largely Neutral -- Except for Sentiment
The McClellan Overbought/Oversold Oscillators remain neutral (All Exchange: +24.296 NYSE: +23.25 Nasdaq: +26.27).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dipped to 21%, staying neutral.
The Open Insider Buy/Sell Ratio dipped slightly to 81.9, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) rose to -1.95 and is now bullish versus its previous very bullish signal. Yet, these traders remain quite leveraged short.
This week's AAII Bear/Bull Ratio (contrarian indicator) saw the crowd staying very fearful, at 2.72 and very bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a rise in bulls and drop in bears but is also very bullish at 40.0/32.9. Three times in the past decade, such readings have marked market lows, most followed by notable rallies.
S&P 500 Trading at a Discount
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped to $239.99 per share. As such, the S&P's forward P/E multiple is 16.0x versus the "rule of 20" ballpark fair value at 17.2x.
The S&P's forward earnings yield is 6.26%.
The 10-Year Treasury yield closed lower at 2.81%. We view support as 2.8% and resistance at 3.00%.
Our Near-Term Market Outlook
While the near-term neutral and intermediate-term bearish chart trends should be respected until proven otherwise, we are encouraged by Tuesday's strong recovery that resulted in some violations of resistance as well as hammers while sentiment is near bearish extremes and valuation has become more appealing.