Retail earnings, Fed speakers and the debt ceiling will be on investors' minds this week. Let's survey where the market is right now.
All the major equity indexes closed lower on Friday with one index trend slipping back to bearish from neutral on its near-term trend. As such, said trends are still a mix of bullish, neutral and bearish projections.
The data remain neutral across the board and have yet to send any high-probability signals regarding short-term movement, suggesting more sideways action is most likely. However, cumulative market breadth is negative and needs improvement to suggest the broader market is in healthy shape.
We continue to interpret the weight of the evidence as suggesting any buying should be very selective as the sideways churn continues.
Index Sideways Action Continues
Chart Source: Worden
On the charts, all the major equity indexes closed lower on Friday with negative NYSE and Nasdaq internals on lighter volume.
All closed near their midpoints of the day that saw the Nasdaq 100 (see above) test resistance but failed to violate while the Russell 2000 (see below) closed back below its near-term downtrend line and is now bearish as are the Dow Transports, Midcap 400 and Value Line Arithmetic Index.
The Nasdaq Composite is bullish with the rest neutral.
Cumulative market breadth remains poor with the advance/decline lines negative for the All Exchange, NYSE and Nasdaq. Thus, our emphasis on any buying being done very selectively.
The Nasdaq Composite and Nasdaq 100 stochastic levels remain overbought but bearish crossover signals have yet to appear. The rest are neutral.
Chart Source: Bloomberg
Data Remain Neutral
The data dashboard is still completely neutral and suggests some further sideways action, in our opinion.
The 1-day McClellan Overbought/Oversold Oscillators are all neutral (All Exchange: -25.53 NYSE: -45.01 Nasdaq: -13.22).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral and unchanged at 46%.
The Open Insider Buy/Sell Ratio dipped to 87.8. It remains neutral as prior insider buying has slackened over the past week.
The detrended Rydex Ratio (contrarian indicator) rose to +0.22, also staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) was 1.57, turning very bullish from bullish as crowd fear rose. That offers some optimism.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was neutral at 23.4/49.8%.
Valuation Gap Disconcerting
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 slipped to $223.60 per share. As such, the valuation gap is still a bit disconcerting with the S&P's forward P/E multiple of 18.4x versus the "rule of 20" ballpark fair value is 16.5x.
The S&P's forward earnings yield is 5.42%.
The 10-Year Treasury yield closed higher at 3.46% and at resistance. It is in a short-term neutral trend. We see support at 3.35% and resistance at 3.46%.
Bottom Line
The weight of the evidence remains inconclusive regarding near-term expectations while poor market breadth continues to find most stocks declining. As such, we expect some further sideways action is most likely while any buying should be done very selectively.
