The market "pause" we have been suggesting continued Thursday. Two key indexes shifted down to neutral from bullish, while the McClellan 1-day OB/OS Oscillators remain on warning signals as all are overbought with stochastic readings in the same condition as one bearish crossover signal was generated.
So, while we believe current extremely bearish investor sentiment represents a potential positive for the markets, the data and charts, still suggest some further consolidation/pause of the recent rally's gains.
Two Indexes Turn Neutral as Rally Pauses
Chart Source: Worden
On the charts, the major equity indexes closed mixed Thursday with the S&P 500, Nasdaq Composite and Nasdaq 100 posting declines as the rest managed minor gains. All closed at or near their intraday lows.
Market breadth and up/down volumes were positive on the NYSE but negative on the Nasdaq.
As the market again retreated from its early intraday highs, the Nasdaq Composite (see above) and Nasdaq 100 (see below) closed below their near-term uptrend lines, turning neutral from bullish, while the Nasdaq 100 also closed below support.
The rest of the charts remain in near-term uptrends.
Market cumulative breadth remains positive on the All Exchange and NYSE with the Nasdaq's neutral.
Stochastic readings are still quite overbought on the charts with
Chart Source: Worden
McClellan OB/OS Oscillators & Stochastics Still Suggest Pause/Consolidation
The data find the McClellan Overbought/Oversold Oscillators remaining cautionary and overbought with the NYSE's very overbought (All Exchange: +90.58 NYSE: +105.72 Nasdaq: +87.3).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 50%, staying neutral.
The Open Insider Buy/Sell Ratio lifted to 43.5, also staying neutral.
The detrended Rydex Ratio, (contrarian indicator) dipped to -1.75 and continues its bullish signal, dropping from its prior very bullish implications prior to the rally.
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 2.49 but remains near a level of bearish sentiment only surpassed twice in the past two decades, those times being during the banking crisis in 2009 and the Covid pandemic in 2020.
Also, this week's Investors Intelligence Bear/Bull Ratio (contrary indicator) was 40.3/31.3 and remains bullish.
Market Valuation at a Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 took another step down to $228.23 per share. As such, its forward P/E multiple is now 16.7x and at a premium to the "rule of 20" ballpark fair value of 16.1x.
The S&P's forward earnings yield is 6.0%.
The 10-Year Treasury yield closed lower at 3.94%. We continue to view support as 3.85% with resistance at 4.43%.
Near-Term Market Outlook
Thursday's fade from its intraday highs with the McClellan Overbought/Oversold Oscillators and stochastics on cautionary signals, continues to imply some further consolidation of the recent rally gains. We would be buyers on weakness near support.