The weakness in the market Wednesday resulted in all but one of the index charts violating support while cumulative market breadth turned negative.
Meanwhile, the data remain largely neutral, all of which suggest the recent consolidation of the March rally may not yet be completed.
The one data point that remains on the positive side of the scale is the extreme degree of bearish investor sentiment, which is a contrarian indicator. However, that side of the scale needs more weight of the evidence added before assuming that the correction has likely been completed.
On the Charts
All the major equity indexes closed lower Wednesday with negative internals on the NYSE and Nasdaq on higher trading volumes.
The only index that did not violate support was the Russell 2000. However, the bulk of the indexes, in our opinion, remain near-term neutral trends given the vertical nature of the March rally.
As of the close, only the Dow Jones Transports (see above) turned near-term negative.
Unfortunately, market breadth soured further as well with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turning negative with all below their 50-day moving averages.
No stochastic signals were generated. However, both the Dow Transports and MidCap 400 are now oversold with the Dow Transports extremely so. Yet, bullish crossovers have yet to be generated.
The McClellan 1-Day Overbought/Oversold Oscillators remain neutral despite Wednesday's market declines (All Exchange: -18.66 NYSE: -22.2 Nasdaq: -14.52). They are not oversold.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 54%, remaining neutral.
The Open Insider Buy/Sell Ratio declined to 37.8, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) dipped to +0.37 and remains neutral versus its prior bullish implications near the March lows.
This week's AAII Bear/Bull Ratio (contrarian indicator) slipped to 1.29 as the crowd became a bit less cautious, dropping its forecast to bullish from very bullish. Meanwhile, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is now 34.1/37.7, remaining very bullish, staying near peak fear levels seen four times over the past decade.
Market Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped to $234.25 per share. As such, the S&P's forward P/E multiple stands at 19.1x with the "rule of 20" finding ballpark fair value at 17.4x.
The S&P's forward earnings yield is now 5.23%.
The 10-Year Treasury yield closed higher at 2.61% after testing 2.64% resistance. We still view resistance as 2.64% while support is raised to 2.32%.
The consolidation of the March rally continues with no signs generated at this stage to suggest it's complete. We will keep our eyes open for any positive implications. However, Wednesday's action was unable to supply them.