Interestingly, Friday's notable market losses had little impact on the charts of the major equity indexes, with near-term trends unchanged in a mix of neutral and bearish projections.
In fact, the indexes have been making higher intraday lows over the past several sessions, suggesting buying has been a bit more aggressive on each subsequent decline.
Meanwhile, the McClellan OB/OS Oscillators are oversold while insiders, who have been active buyers of late, held their ground.
As such, we remain of the opinion some very selective buying remains appropriate. The high degree of selectivity is due to negative market breadth.
Friday's Declines Had Little Impact on Charts
Chart Source: Bloomberg
On the charts, all the major equity indexes closed lower Friday with negative internals on heavy volume.
The S&P 500, Nasdaq Composite and Nasdaq 100 closed near the midpoints of the session as the rest closed near their lows. However, the notable market losses had little technical impact on the charts as the only event of note was the Russell 2000 (see above) closing below support.
There were no alterations of trend with the Nasdaq Composite, Nasdaq 100 and Dow Jones Transports neutral and the rest negative.
We would also note the intraday lows have been rising over the past few sessions that imply buying has been more aggressive on each subsequent decline.
The broadly negative market breadth, however, remains a problem.
No stochastic signals were generated.
Data Dashboard Still Has Some Green Lights Flashing
The 1-Day McClellan Overbought/Oversold Oscillators remain in oversold territory with the NYSE very oversold (All Exchange: -91.40 NYSE: -109.01 Nasdaq: -81.45).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 19% and is back on a bullish signal.
The Open Insider Buy/Sell Ratio still offers some encouragement, as insiders, who have been active buyers of late, held their ground, and was little changed at 90.6 and neutral. They did not join the crowd's rush to the exits on the session.
The detrended Rydex Ratio (contrarian indicator) dropped to -0.72, staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.79 and very bullish with very high investor fear.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was neutral at 24.7/45.2.
Valuation Gap Slightly Narrows
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 slipped slightly to $220.65 per share, slightly narrowing the valuation gap with its forward P/E multiple at 17.8x while the "rule of 20" ballpark fair value rose to 16.6x. It remains at a premium.
The S&P's forward earnings yield is 5.63%.
The 10-Year Treasury yield closed lower at 3.4%. It is short-term neutral with support at 3.40% and resistance at 3.62%, by our analysis.
Our Market Outlook
As the crowd continues to wring its hands over the recent news in the financial sector and market breadth is poor, the evidence discussed above suggests to us that very selective buying remains appropriate.