The weight of the evidence continues to suggest some more sideways action for this market.
All but one of the major equity indexes closed lower Tuesday. Most closed near their session lows with one index turning bullish as another turned bearish, leaving the near-term trends mixed.
Cumulative market breadth remains poor with all the advance/decline lines negative while the data remain largely neutral with the exception of investor sentiment (contrarian indicator) that remains on a very bullish signal (see below).
We believe any buying should be done on a very selective basis given the poor state of market breadth.
Indexes Close Mostly Lower as Trends Stay Mixed
Chart Source: Worden
On the charts, all the major equity indexes closed lower Tuesday except for the Nasdaq 100 posting a gain due to three of the mega-caps moving higher. All closed near their session lows that resulted in a few technical events being generated.
The DJIA closed below its 50-day moving average while the Nasdaq closed above resistance and is now near-term bullish versus neutral as the Russel 2000 slipped back below its downtrend line and is back in a bearish condition.
The Dow Jones Transports closed below support, staying bearish.
Regarding trends, the Nasdaq Composite and Nasdaq 100 (see above) are bullish, the S&P 500 and DJIA neutral with the rest bearish.
Cumulative market breadth remains negative on the All Exchange, NYSE and Nasdaq as more stocks continue to decline than advance.
The stochastic readings remain overbought on the Nasdaq Composite and Nasdaq 100 but have not generated bearish crossover signals so far, while the rest are neutral.
Data Remains Largely Neutral & Suggesting More Sideways Action
The data dashboard remains largely neutral and still suggests some further sideways action, in our opinion.
The 1-day McClellan Overbought/Oversold Oscillators are mostly neutral with only the NYSE oversold (All Exchange: -30.4 NYSE: -55.01 Nasdaq: -14.26).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral dropping to 38%.
The Open Insider Buy/Sell Ratio rose slightly to 82.1. It remains neutral as prior insider buying has slackened over the past few weeks.
The detrended Rydex Ratio (contrarian indicator) slipped to -0.01, also staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.61 and remains very bullish. In our view, it is the one bright spot on the data dashboard.
The AAII Bear/Bull Ratio (using 3WMA) is 1.61 (very bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is still neutral at 24.3/44.6%.
Valuation Gap Remains
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 saw a minor lift to $223.56 per share. As such, the valuation gap is still a bit disconcerting with the S&P's forward P/E multiple of 18.4x versus the "rule of 20" ballpark fair value is 16.5x.
The S&P's forward earnings yield is 5.44%.
The 10-Year Treasury yield closed higher and above resistance at 3.55%. It is in a short-term bullish trend. We now see support at 3.47% and new resistance at 3.59%.
Bottom Line
The overall picture painted by the charts and data still suggests some further sideways action. With breadth mostly negative and valuation at a premium, any buying should be done quite selectively until this pause is resolved. High investor fear is the most encouraging factor for a positive resolution.
