While bounce signals have intensified Friday morning, we believe that some improvement on the charts is necessary in order to embrace the data with a high degree of confidence.
We suspect the market's gap down Friday morning may create that bottom. However, only the close will be able to shed some light on the situation.
We remain patient with the adage, "Think ahead. Don't trade ahead," in mind.
Charts Slide Further and Lack Reversal Signals
Chart Source: Worden
All the indexes closed lower Thursday with negative NYSE and Nasdaq internals on higher volume.
All closed at or near their intraday lows with only the Nasdaq 100 (see above) and Dow Jones Transports holding support as the rest failed. These too, are set to be violated in early trading.
All the indexes are still in near-term bearish trends and lacking signs of any shifts.
Cumulative market breadth is negative and continues heading south on the All Exchange, NYSE and Nasdaq.
And while the stochastic levels are very oversold, they also have yet to generate bullish crossover signals.
Data Continue to Suggest Pause/Bounce Near-Term
The data that suggested some pause or possible bounce from the recent weakness Thursday failed to appear -- and have intensified.
The McClellan Overbought/Oversold Oscillators are now very oversold on all (All Exchange: -126.52 NYSE: -140.09 Nasdaq: -117.74).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 10% and is on a bullish signal.
The Open Insider Buy/Sell Ratio lifted to 68.1% but remains neutral.
The detrended Rydex Ratio (contrarian indicator) remains in very bullish territory although it rose to -2.77. It remains at a level that has only been exceeded five times in the past 10 years as the typically wrong leveraged ETF traders now have extremely leveraged short exposure.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 2.27 and is still on a very bullish signal as well with bears outnumbering bulls by more than 2 to 1.
The AAII Bear/Bull Ratio Is 2.27 (Very Bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 28.2/32.4 and neutral.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped to $231.14 per share. As such, the S&P's forward P/E multiple is 16x and at the "rule of 20" ballpark fair value of 16.3x.
The S&P's forward earnings yield is 6.15%.
The 10-Year Treasury yield closed at 3.71%. We view support at 3.23% with resistance at 4.0%.
Our Near-Term Market Market
While the data still suggest some pause/relief from recent weakness, the charts have yet to show any signs that would encourage a high degree of confidence in following these data signals. Whether Friday is or is not that turning point has yet to be determined. We remain patient.