Let's assess the damage in its immediate aftermath and going forward.
What Happened on the Charts?
The major equity indexes closed lower Thursday with negative internals on higher trading volume. Selling pressure persisted into the close leaving all at or near their intraday lows.
Negative technical events were seen on the Nasdaq Composite (see above), Nasdaq 100 and Value Line Arithmetic Index as they closed below their support levels. Also, the S&P 500, Russell 2000 and Value Line index closed below their 50-day moving averages.
Regarding trends, the Nasdaq Composite and Nasdaq 100 are now near-term negative, the DJIA positive with the rest staying neutral.
Market breadth weakened on the All Exchange, turning negative as is the Nasdaq's. The NYSE A/D remains neutral.
No stochastic signals were generated although the Nasdaq indexes remain oversold in that regard.
Market Data Remain Largely Neutral Except Investor Sentiment
The McClellan 1-Day Overbought/Oversold oscillators dropped but remain neutral (All Exchange: -30.42 NYSE: -24.01 Nasdaq: -33.52).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) slipped to 57%, remaining neutral.
The Open Insider Buy/Sell Ratio dropped slightly to 50.6, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) rose to -0.68 and is now mildly bullish as the ETF traders are somewhat leveraged short.
We remain focused on this week's AAII Bear/Bull Ratio (contrarian indicator), which rose to a very bullish 1.62 as crowd fear intensified. According to briefing.com, bullish sentiment is at a 30-year low on that survey.
The AAII Bear/Bull Ratio is 1.62 (very bullish)
Meanwhile the Investors Intelligence Bear/Bull Ratio (contrary indicator) was 32.1/35.8, remaining bullish. Such high levels of fear have frequently been upside catalysts over the years once the markets start to improve.
Market Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 rose to $236.19 per share. Thus, the S&P's forward P/E multiple stands at 18.6x with the "rule of 20" finding ballpark fair value at 17.1x.
The S&P's forward earnings yield is now 5.38%.
The 10-Year Treasury yield closed higher at 2.93%. We view resistance as 3.0%. Support is 2.5%.
Here's Our Near-Term Market Outlook
Thursday's declines, while disturbing, did not present enough evidence, by our methodology, to change our opinion that the correction from the March highs has likely been completed. Some stabilization, however, needs to be forthcoming for our assumption to remain intact.
Meanwhile, contrarian investor sentiment readings show a historically low level of bullish sentiment could be a strong upside catalyst as has frequently been the case over the years.