The market is taking another hit Wednesday after Tuesday's declines. Indeed, as we've noted recently, we have not seen enough evidence so far to suggest the recent market correction has seen its lows.
Looking at Tuesday's action, there were several negative technical events registered on the charts while cumulative market breadth deteriorated as well.
And while the bulk of the data is neutral, including investor sentiment, valuation remains extended well above ballpark fair value.
Index Charts and Cumulative Breath Weaken
Chart Source: Bloomberg
On the charts, all the major equity indexes closed lower Tuesday with mostly negative internals on heavier trading volumes.
All but one closed near the lows that saw violations of support on the Dow Jones Transports, Midcap 400 and Value Line Arithmetic Index while the DJIA, Russell 2000 and Value Line index closed below their 50-day moving average.
As such the near-term trends are now neutral for the S&P 500, Nasdaq 100, Russell 2000 and Value Line index.
The Nasdaq Composite is bullish with the DJIA, Dow Transports and MidCap 400 bearish.
Cumulative market breadth weakened as well for the All Exchange, NYSE and Nasdaq as all slipped to neutral from bullish and below their 50 DMAs.
Bearish stochastic crossover signals were generated on the Midcap 400, Russell and Value Line index.
Data Largely Neutral
The data remain largely neutral.
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: +7.89) Nasdaq: (+10.34) and NYSE: (+4.05).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 37%, staying neutral.
The Open Insider Buy/Sell Ratio slipped to 46.2%, staying neutral as well.
The detrended Rydex Ratio (contrarian indicator) remains neutral and unchanged at 0.92% but approaching bearish levels.
Leveraged ETF sentiment (contrarian indicator) slipped to 26.3% and is also neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 0.99, also staying neutral.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) shifted to neutral from a bearish signal at 20.8/43.1.
As such, investor sentiment has become a bit less threatening.
Valuation Remains Extended
Valuation remains a primary concern and extended, in our opinion. The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 declined to $232.53 per share with its forward P/E multiple at 19.3x and still well above the "rule of 20" ballpark fair value at 15.7x. It continues to leave little room for error.
The S&P's forward earnings yield is 5.17%.
The 10-Year Treasury yield closed higher at 4.27% and above resistance. Support is 4.12% with resistance at 4.32%.
As the market's internals and technical status have seen some deterioration, we view valuation as still being extended while there has yet to be enough evidence presented that would suggest that the current correction is complete. We remain cautious while honoring sell signals on individual names.