On the Index Charts
All the major equity indexes closed lower Friday with negative internals on lighter volume. Most closed near the midpoints of their intraday ranges.
However, the subsequent losses had no impact on the technical aspects of the charts as all remain in near-term uptrends with no violations of trend or support.
Market cumulative breadth remains healthy as well with the A/Ds for the All Exchange, NYSE and Nasdaq also positive and above their 50-day moving averages.
The stochastic levels are still overbought and in the 90s across the board but have yet to generate any bearish crossover signals.
Digging Into the Market Data
Regarding the data, the McClellan Overbought/Oversold Oscillators remain overbought for the All Exchange (see below) and NYSE while the Nasdaq's dropped back to neutral (All Exchange: +92.60 NYSE: +98.34 Nasdaq: +89.86). Their warning signals from last Thursday and Friday appear to have been prescient.
The All-Exchange McClellan ratio adjusted 1-day OB/OS Oscillator is +56.67 (bearish) and 21 day +26.45 (neutral)
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is neutral, dipping to 54%.
The Open Insider Buy/Sell Ratio slipped to 47.7, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) rose to -1.18. While it remains bullish, the leveraged ETF traders have done some sizable, short-covering from their previously extremely leveraged levels but are still leveraged short.
Last week's AAII Bear/Bull Ratio (contrarian indicator) saw the crowd staying very fearful, at 2.11 and very bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a rise in bulls and dip in bears but is still very bullish at 36.6/32.4. Three times in the past decade, such readings have marked market lows, most followed by notable rallies.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 continues to decline and is down to $236.91 per share. Therefore, the S&P's forward P/E multiple is 16.7x with the "rule of 20" ballpark fair value at 17.2x.
The S&P's forward earnings yield rose slightly to 5.98%.
The 10-Year Treasury yield closed lower at 2.78% and below what we viewed as support. We view new support as 2.71% and resistance at 3.04%.
Our Near-Term Market Outlook
Friday's losses were to be somewhat expected, as we had speculated. Importantly, however, the current chart conditions, positive market breadth and valuation suggest the declines occurred within an improving environment.