All but one of the major equity indexes closed lower Thursday with negative NYSE and Nasdaq internals as trading volumes rose from the prior session on both. Their near-term trends remain a mixed bag of bullish, bearish and neutral projections while cumulative market breadth is still negative as it saw further deterioration.
On the data front, the dashboard is largely neutral while the primary cloud overhanging the markets, in our opinion, continues to be extended forward 12-month valuation for the S&P 500 (see below).
As such, we have yet to see enough evidence coming to the fore to imply the current correction has been completed. We are honoring sell signals while viewing individual names much more on a case-by-case basis.
Index Charts See More Violations of Support
Chart Source: Worden
On the charts, only the DJIA managed to close in the green Thursday as the rest declined.
Market internals were negative on higher volume.
Negative technical events were registered on the S&P 500 (see above), Midcap 400, Russell 2000 and Value Line Arithmetic Index as they closed below support.
Also, both the Nasdaq Composite and Nasdaq 100 closed below their 50-day moving averages.
Near-term trends are mixed with only the Nasdaq Composite bullish. The DJIA, Dow Jones Transports and MidCap 400 are bearish with the rest neutral.
Cumulative market breadth remains bearish on the All Exchange, NYSE and Nasdaq as it saw further deterioration.
Also, the Nasdaq Composite generated a bearish stochastic crossover signal.
Data Still Largely Neutral
The data remain largely neutral.
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: -33.05 NYSE: -34.68 and Nasdaq: -33.22).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dipped to 33%, staying neutral.
The Open Insider Buy/Sell Ratio dropped to 37.0%, staying neutral as well.
The detrended Rydex Ratio (contrarian indicator) remains neutral and unchanged at 0.93% as the leveraged ETF traders appear to be "buying the dip" as it edges closer to bearish signal levels.
Leveraged ETF sentiment (contrarian indicator) slipped to 17.7% and is also neutral.
This 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 Remains Extended
Valuation remains a primary concern and extended, in our opinion
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped slightly to $232.51 per share with its forward P/E multiple at 19.1x and still well above the "rule of 20" ballpark fair value at 15.7x. It continues to leave little room for error.
Its forward earnings yield is 5.22%.
The 10-Year Treasury yield closed lower at 4.26. Support is 4.12% with resistance at 4.32%.
Bottom Line
Weak charts and market breadth combined with overvaluation keep us cautious for the near term until such evidence is presented to suggest otherwise.
