Recent market weakness, including Wednesday's, has yet to disrupt the bullish near-term trends on all the major equity indexes. However, market breadth weakened to neutral from bullish while several index charts registered bearish stochastic crossover signals.
Regarding market data, the Open Insider Buy/Sell Ratio has turned bearish as insiders have been unloading while, the S&P 500's forward 12-month valuation continues to trade at a substantial premium.
As such, despite the positive action Thursday morning, there is enough weight on the cautionary side of the scales to suggest waiting for better buying opportunities before adding to equity exposure.
Index Chart Trends Positive After Weak Session
On the charts, all the major equity indexes closed lower Wednesday with negative internals on lighter volume on the NYSE and Nasdaq.
Nonetheless, the weakness still left all the index charts near-term positive and above their 50-day moving averages. They have yet to generate sell signals.
However cumulative market breadth for the All Exchange, NYSE and Nasdaq turned neutral from bullish while the S&P 500 (see below), Nasdaq Composite and Nasdaq 100 registered bearish stochastic crossover signals suggesting some degree of caution.
Chart Source: Worden
Open Insider Buy/Sell Ratio Turns Bearish
The data dashboard still finds all the 1-Day McClellan Overbought/Oversold Oscillators non-threatening and in neutral territory (All Exchange: -21.92 NYSE: -32.61 Nasdaq: -14.13).
The percentage of S&P 500 issues trading above their 50 DMAs (contrarian indicator) dropped to 67% and remains on a neutral signal.
Again, we would note the Open Insider Buy/Sell Ratio, discussed here Wednesday, dropped to 23.4 and has officially turned bearish, as insiders have increased their selling over the past few sessions.
The detrended Rydex Ratio (contrarian indicator) is unchanged at a neutral +0.33.
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 bothersome as the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 dropped to $217.75 per share. Thus, its forward P/E multiple at 18.9x remains at a significant premium to the "rule of 20" ballpark fair value of 16.4x via the "rule of 20." It remains a notable cause for concern, in our view.
The S&P's forward earnings yield is 5.29%.
The 10-Year Treasury yield closed lower to 3.65%. It is short-term neutral and just short of resistance at 3.68%. We see support at 3.49%.
Our Market Outlook
While the charts have yet to raise any yellow flags, market valuation combined with narrowing breadth, increasing insider selling and some bearish stochastic crossover signals suggest we keep our hands in our pockets for the near-term, regarding adding to equities, despite the strong market action Thursday morning.