AS we start a new trading week, where does the market stand?
The major equity indexes closed mixed Friday and most importantly, several closed below their near-term uptrend lines and are now neutral versus their prior bullish trends.
Only two of the charts remain bullish.
Meanwhile, cumulative market breadth remains negative while the forward 12-month valuation for the S&P 500 remains extended. What's more, insiders have yet to show any increase in appetite for their own issues.
As such, we do not see enough of a shift in the evidence to alter our cautious near-term outlook for equities as we continue to wait for stronger signals that buying may be resumed, in general.
Charts See More Uptrends Violated
Chart Source: Worden
On the charts, the major equity indexes closed mixed Friday on lighter volume.
In our opinion, the most important technical events of the day were the Nasdaq Composite (see above), Nasdaq 100, Dow Jones Transports and MidCap 400 all closing below their near-term uptrend lines, shifting said trends to neutral from bullish.
As a result, only the S&P 500 and DJIA remain bullish with all the others neutral.
Cumulative market breadth is less than optimal as well with the advance/decline lines for the All Exchange, NYSE and Nasdaq negative as the Nasdaq's dropped below its 50-day moving average.
Stochastic readings are neutral and have yet to enter oversold territory.
McClellan Oscillators Oversold
The data finds the 1-Day McClellan Overbought/Oversold Oscillators oversold on the All Exchange, NYSE and Nasdaq that, in our opinion, suggest the potential of a pause of the recent market weakness (All Exchange: -59.18 NYSE: -65.07 Nasdaq: -55.54).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 62% but remains on a neutral signal.
The Open Insider Buy/Sell Ratio, that has been a cause of concern, has yet to show an important shift away from their recent selling activity and is still on a bearish signal at 22%.
The detrended Rydex Ratio (contrarian indicator) dipped to a neutral +0.18.
Last week's AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.17 as bearish sentiment declined and shifted to neutral from bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is also neutral at 28.0/45.4.
Valuation Remains Problematic
Valuation continues to be troubling as the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 dropped further to $217.67 per share. As such, its forward P/E multiple at 18.8x remains at a significant premium to the "rule of 20" ballpark fair value of 16.3x via the "rule of 20." It remains a sensible cause for concern in our view.
The S&P's forward earnings yield is 5.32%.
The 10-Year Treasury yield closed higher at 3.75% and above resistance. It is now in a short-term uptrend with support at 3.58% and new resistance at 3.8%, by our analysis.
Our Market Outlook
While the McClellan 1-day OB/OS Oscillators suggest a possible pause in the market's recent weakness, insider selling along with deteriorating charts and market breadth as the S&P 500 trades at a significant premium to ballpark fair value are suggesting buying should be postponed.
