Amid Tuesday's market decline, two of the index charts saw some deterioration as the "return lines," as recently discussed here, appear to be reasserting themselves on the larger-cap indexes, at least for the moment.
And while some charts saw some technical weakening, the Insider/Buy Sell Ratio saw an uptick in selling activity and turned bearish while the Detrended Rydex Ratio moved deeper into cautionary territory.
As such, we believe the potential for some further consolidation of recent gains is likely.
On the Charts
All the major equity indexes closed lower Tuesday with negative NYSE internals while the Nasdaq's were mixed.
The indexes closed at various points within their intraday ranges, but the popular large-cap indexes all closed near their intraday lows.
The DJIA closed below its near-term uptrend line and is now neutral versus its prior bullish trend.
Also, the Dow Jones Transports closed below support.
So, all remain in near-term uptrends except the Dow Transports, which is neutral.
While Tuesday's market breadth was negative, it was not sufficient to alter the uptrends of the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
No stochastic signals were generated at the end of trading.
The data finds the McClellan 1-Day Overbought/Oversold all in neutral territory (All Exchange: +30.12 NYSE: +31.7 Nasdaq: +29.2).
The detrended Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, rose to 1.42 and deeper into bearish levels as they extended their leveraged long exposure.
In contrast, the Open Insider Buy/Sell Ratio dropped to 24.3 as insiders ratcheted up their selling activity and is now on a bearish signal.
As we have stated in the past, when insiders are selling as the ETF traders continue to be leveraged long, the insiders typically are on the right side of the trade.
This week's contrarian AAII Bear/Bull Ratio (27.73/42.73) remained neutral with the increase in bulls as did the Investors Intelligence Bear/Bull Ratio (24.1/54.0) (contrary indicator).
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has dipped to $213.83 per share. As such, the S&P's forward multiple is 21.9x with the "rule of 20" finding fair value at approximately 18.6x.
The S&P's forward earnings yield is 4.56%.
The 10-Year Treasury yield closed lower at 1.43%. We view resistance at 1.54% and support at 1.38%.
We remain "neutral" in our near-term macro-outlook for equities as the issues discussed above imply the markets may likely see some further consolidation of recent gains.