Monday morning's market action suggests a continuation of Friday's weakness. Over the past week we have suggested any sell signals in individual names should be honored. We remain of that opinion as no bottoming signals from the charts or data have been presented thus far.
Despite Friday's weakness, only one major index chart -- the S&P 500 -- saw technical damage, leaving the major indexes a mix of neutral and negative trends. Meanwhile, the data continues to send a mix of neutral and negative signals while market breadth, remains negative and continues to deteriorate.
On the Charts
All the major equity indexes closed lower Friday with negative internals on the NYSE while the Nasdaq's were slightly positive. No late-day buying of significance appeared, leaving all at or near their intraday lows.
Yet only the S&P 500 saw technical damage (see above) as it closed below support and its 50-day moving average, turning its trend to negative from neutral.
The DJIA, Russell 2000 and MidCap 400 are negative as well with the rest neutral.
Poor market breadth, which has been a concern, continued to weaken with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq all negative and below their 50 DMAs.
No stochastic signals were generated.
The data still find the McClellan 1-Day Overbought/Oversold Oscillators in neutral territory (All Exchange: -14.06 NYSE: -29.88 Nasdaq: -3.1).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipped to 1.1 but still finds the ETF traders leveraged long and on a bearish signal.
The Open Insider Buy/Sell Ratio was lifted to 37.8 but remains neutral as insiders did begin to nibble.
In our opinion, we may need to see more dramatic levels on the OI B/S and Rydex before things settle down.
Last week's contrarian AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicator) were little changed. The AAII remained neutral (31.17/40.63) while the II turned neutral from bearish at 21.1/52.6.
Market Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg dipped to $207.39. As such, the S&P's forward P/E multiple is 21.4x with the "rule of 20" finding fair value at approximately 18.6x.
The S&P's forward earnings yield is 4.61%.
The 10-Year Treasury yield rose to 1.3% but remains within its current trading range with resistance at 1.4% and support at 1.23%. A move above 1.4% would, in our view, suggest 1.5% as the next level.
While we remain "neutral" in our near-term outlook for equities, the charts and data continue to suggest some caution is warranted. We reiterate our belief that "sell signals" on individual names should be honored.