Following Thursday's mixed market action, the near-term trends of the major equity indexes are a mix of bullish, neutral and bearish projections while cumulative market breadth remained positive.
With the trends remaining mixed, the data dashboard continues to lack near-term market projections as all but one are neutral. Yet, we continue to find valuation as a significant overhanging cloud (see below).
In our opinion, we have yet to see enough evidence presented to conclude the recent market correction has been completed. We are now more focused on buy or sell signals on individual names given the state of the charts and data.
Indexes Close Mixed with Negative Internals
Chart Source: Worden
On the charts, the major equity indexes closed mixed Thursday with the Nasdaq Composite, Nasdaq 100 and Midcap 400 posting gains as the rest declined.
Internals were negative on higher volume.
The Dow Jones Transports (see above) broke below support, its 50-day moving average and back below its downtrend line, turning bearish from neutral while the Value Line Arithmetic Index also broke its 50 DMA.
The near-term trends are now bullish on the S&P 500, Nasdaq Composite and Nasdaq 100, bearish on the DJT and neutral on the rest.
Cumulative market breadth, however, is still positive on the All Exchange, NYSRE and Nasdaq.
Of note, almost all are now on overbought stochastic readings but have yet to generate any bearish crossover signals.
Data Remains Mostly Neutral
The data remains almost entirely neutral.
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: +28.0 NYSE: +37.9 Nasdaq: +22.61).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dipped to 43%, staying neutral.
The Open Insider Buy/Sell Ratio slipped to 53.3%, staying neutral as well.
The detrended Rydex Ratio (contrarian indicator) remains neutral but rose to 0.68%.
Leveraged ETF sentiment (contrarian indicator) rose to 23.3% and is also neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 0.74, also staying neutral.
However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is still on a bearish signal at 18.6/44.3. We continue to view them as representing potential supply.
Valuation Continues to Be Extended
Valuation remains a primary concern and extended, in our opinion. The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 is unchanged at $232.07, with its forward P/E multiple at 19.4x and still well above the "rule of 20" ballpark fair value at 15.9x. It is leaving little room for error.
Its forward earnings rose slightly to 5.15%.
The 10-year Treasury yield closed lower at 4.09%. Support is 4.09% with resistance at 4.3%.
Bottom Line
While the charts and data are sending mixed signals, the market's extended valuation continues to be an issue for us. We have yet to see enough evidence presented to feel confident the recent market correction has been completed. We believe some caution is still warranted while focusing on individual names.
