The collapse of Silicon Valley Bank (SIVB) Friday and the shutdown of Signature Bank (SBNY) over the weekend has markets oscillating as the traders and investors assess the fallout and what could be next.
With that in mind, let's take account of where the markets stand from a technical perspective.
Following Friday's big selloff, the data are starting to send some long-awaited bullish signals that suggest our prior cautionary macro-outlook can now be altered. Meanwhile, the valuation gap has narrowed as well.
We now believe "toe dipping" can be initiated on a selective basis, with some cash reserves built up over the past month now slowly redeployed.
On the charts, all the major equity indexes closed in the red Friday with very negative market internals on heavy trading volumes for the NYSE and Nasdaq.
All closed near their session lows as each sliced through its respective support levels that kept all in near-term bearish trends and lacking buy signals.
Cumulative breadth was equally impacted as the advance/decline lines for the All Exchange, NYSE and Nasdaq also remain bearish.
However, the stochastic levels finally sank into oversold territory for the S&P 500 (see below), DJIA, MidCap 400, Russell 2000 and Value Line Arithmetic Index.
We would now look for bullish crossover signals to appear at some point, although there is no timeframe in that regard.
Chart Source: Worden
Insider Buying Lifts
Of importance is the shift in the data that suggest the sun may be starting to peek through the clouds.
The 1-Day McClellan Overbought/Oversold Oscillators are now deeply oversold and imply some stabilization or possible strength (All Exchange: -131.13 NYSE: -149.01 Nasdaq: -121.84).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 17% and, as a contrarian indicator is now bullish.
Adding to the mix, The Open Insider Buy/Sell Ratio rose to 26.5 from 19.9 as insiders finally found enough incentive to increase their buying activity.
The detrended Rydex Ratio (contrarian indicator) dropped to -0.15, staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.42, as bearish sentiment saw a sizable increase, and is now bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was neutral at 28.8/38.4.
Valuation Gap Narrows
Another positive is a narrowing of the valuation gap between the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500, lifting to $220.36 per share. This leaves its forward P/E multiple at 17.5x while the "rule of 20" ballpark fair value rose to 16.3x. It remains at a premium but less than has been the case over the past four weeks. In our opinion, potential near-term risk declined slightly.
The S&P's forward earnings yield is 5.71%.
The 10-Year Treasury yield closed lower at 3.7% and below support. It is short-term neutral with new support at 3.63% and resistance at 3.9%, by our analysis.
Our Market Outlook
While the charts have yet to show any indications the worst is over for the current correction, much of the data that have been cautionary is now on green lights. Thus, they suggest some degree of buying equities can now resume on a limited basis until the charts confirm.