While we do see some encouraging signs after Friday's bounce, we believe the current market trends should be honored until proven otherwise.
Chart Source: Worden
Of the major equity indexes, only the DJIA (see above) and Dow Jones Transports closed lower Friday as the rest posted gains with positive internals in the NYSE and Nasdaq on heavy trading volume.
All closed near the midpoints of their intraday ranges. However, the lift did nothing to alter the current near-term bearish trends that remain on all the charts.
Cumulative market breadth remains bearish as well on the All Exchange, NYSE and Nasdaq while the stochastic levels remain oversold, having yet to generate bullish crossover signals.
Regarding the Data
The McClellan Overbought/Oversold Oscillators that were oversold, suggesting Friday's bounce, are back to neutral on the All Exchange and Nasdaq while the NYSE is still oversold (All Exchange: -44.43 NYSE: -74.71 Nasdaq: -22.03).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is unchanged at 2% and well below the 25% trigger line, remaining bullish.
The Open Insider Buy/Sell Ratio increased to 100.4 from 96.9 as insiders continued their buying throughout the past week.
On the other hand, the detrended Rydex Ratio (contrarian indicator) remains very bullish -2.76 as the leveraged ETF traders are highly leveraged short.
Last week's AAII Bear/Bull Ratio (contrarian indicator) remained very bullish at 1.89.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) also remained on a very bullish signal and still near a decade peak of fear at 40.0/35.72. Such extreme levels of investor fear have typically presaged notable market rallies.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 dipped to $236.72 per share. As such, the S&P's forward P/E multiple is down to 15.5x and at a discount to the "rule of 20" finding ballpark fair value at 16.8x.
The S&P's forward earnings yield is 6.44%.
The 10-Year Treasury yield closed lower at 3.24%. We view support as 3.0% and new resistance at 3.51%.
Our Near-Term Market Outlook
While some of the data and valuation are pointing in a positive direction, we continue to believe the current trends and poor breadth should be respected. Once they improve, we will have greater confidence in having a more optimistic view.