As Real Money's Helene Meisler points out, keep an eye on the Transports.
The Dow Jones Transports closed below support Friday (see below). This leaves the chart trends still in a mix of bullish, bearish and neutral near-term trends while cumulative market breadth remains negative.
The data continue to send generally neutral signals that do not suggest any near-term implications for market movement. However, as has been the case for the past several weeks, the forward 12-month valuation for the S&P 500 continues to be quite extended (see below).
Thus, we continue to evaluate individual positions on a case-by-case basis while honoring sell signals as we have yet to see enough evidence presented that would suggest the recent correction has seen its lows.
On the Charts
Chart Source: Worden
On the charts, the S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 posted modest gains Friday as the rest of the major equity indexes declined.
NYSE internals were positive with the Nasdaq's negative as trading volumes slumped on both from the prior session with all closing near their lows of the day.
The only technical event of importance generated was the Dow Jones Transports (see above) closing below support and staying near-term bearish as are the DJIA, MidCap 400 and Russell 2000.
The Nasdaq Composite is short-term bullish with the rest neutral.
Cumulative market breadth for the All Exchange, NYSE and Nasdaq remains bearish while no new stochastic signals were triggered.
Data Remain Largely Neutral
The data remain largely neutral. The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: -28.49 NYSE: -25.94 and Nasdaq: -31.29).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is unchanged 33%, staying neutral.
The Open Insider Buy/Sell Ratio dropped to 34.6%, staying neutral as well.
The detrended Rydex Ratio (contrarian indicator) remains neutral and unchanged at 0.93% as the leveraged ETF traders appear to have been "buying the dip" as it edges closer to bearish signal levels.
Leveraged ETF sentiment (contrarian indicator) is 17.7% and also neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 0.99, also staying neutral.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) shifted to neutral from a bearish signal at 20.8/43.1. As such, investor sentiment has become a bit less threatening.
Valuation
Valuation remains a primary concern and extended, in our opinion. The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 rose to $232.60 per share with its forward P/E multiple at 19.2x and still well above the "rule of 20" ballpark fair value at 15.7x. It continues to leave little room for error.
The S&P's forward earnings yield is 5.22%.
The 10-Year Treasury yield closed unchanged at 4.26%. Support is 4.12% with resistance at 4.32%.
Bottom Line
The weak charts and market breadth combined with overvaluation keep us cautious for the near term until such evidence is presented to suggest otherwise. Until then, we are evaluating positions on a case-by-case basis while also honoring sell signals.
