As we begin September, historically the worst-performing month of the year for markets, what are the charts and data telling us?
What was unusual about Tuesday's action is the dips in the indexes occurred with very positive breadth and on higher trading volumes. We view that as slightly encouraging as up days with negative breadth have been the typical divergences of late.
One chart did turn neutral from positive, but the bulk of the indexes remain in near-term uptrends as does market breadth.
The data saw two cautionary signals appear while the rest remain neutral.
Let's take a closer look at all the charts and data.
On the Charts
All the major equity indexes closed lower Tuesday except the Russell 2000 (see above), which posted a minor gain. What was unique, as mentioned above, was the fact that the dips occurred with positive market breadth on higher trading volumes. We would view that anomaly as somewhat encouraging.
Two technical events of note were generated, though. The Dow Jones Transports closed below its 50-day moving average but remains in a near-term uptrend while the MidCap 400 closed below its near-term uptrend line and is now neutral versus its prior positive trend.
The DJIA trend remains neutral as well with the balance in short-term uptrends.
Market breadth finds the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq staying short-term positive.
No stochastic signals were generated.
Market data saw a few shifts Tuesday.
The McClellan 1-Day Overbought/Oversold Oscillators find the Nasdaq 1-day now overbought with the rest neutral (All Exchange: +44.83 NYSE: +24.6 Nasdaq: +59.19).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, saw a notable jump to 1.43 as the ETF traders significantly increased their leveraged long exposure and is now in bearish territory.
The Open Insider Buy/Sell Ratio was unchanged at a neutral 38.5.
This week's contrarian AAII bear/bull ratio saw an increase in bears and bulls, remaining neutral (32.77/35.43) with Investors Intelligence Bear/Bull Ratio at a bearish 18.5/50.0 (contrary indicator) as a few advisors left the bull camp.
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has dipped to $207.09 per share. As such, the S&P's forward P/E multiple is 21.8x with the "rule of 20" finding fair value at approximately 18.7x.
The S&P's forward earnings yield is 4.58%.
The 10-Year Treasury yield rose to 1.3% but remains within its current trading range with resistance at 1.4% and support at 1.23%. The recent shift of the 10-Year yield into a higher trading range could cause some issues for the markets.
Tuesday's market action did not present enough evidence to alter our current "neutral/positive" near-term macro-outlook for equities.