Friday's market close is very important for this market, in our view.
Key support levels may be tested and these supports need to hold to maintain our belief that the equity indexes have made a near-term bottom, offering buying opportunities near support levels.
Meanwhile, investor sentiment (contrarian indicators) remain at peak levels of bearish opinions that have been coincident with market bottoms over the past two decades.
Today's close will, in our view, be key as to whether our assumption is valid. Until proven otherwise, we continue to believe buying near support is appropriate at this time.
Near-Term Chart Trends Remain Neutral
On the charts, all the major equity indexes closed lower Thursday with negative internals on the NYSE while the Nasdaq's were mixed with all closing near their intraday lows.
However, the weakness left the current near-term trends for the indexes neutral across the board while no support levels were violated.
Still, important support levels could be tested during the session Friday. For our near-term opinion regarding buying near support under the assumption the markets have established a bottom, said supports need to hold.
Cumulative market breadth remains neutral as well for the All Exchange, NYSE and Nasdaq, having shifted from bearish earlier in the week.
No stochastic signals were generated.
Detrended Rydex Ratio Near Peak Levels of Leveraged Short Exposure
The data find the McClellan Overbought/Oversold Oscillators still neutral (All Exchange: +3.06 NYSE: -6.88 Nasdaq: +9.56).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 17%, turning bullish from neutral.
The Open Insider Buy/Sell Ratio dropped to 50.5, staying neutral.
The detrended Rydex Ratio, (contrarian indicator) (see below), continues its extremely bullish signal diving to -3.59. The ETF traders continue to have historically leveraged short exposure, coincident with market lows, and, in our opinion, create the probability of becoming a bullish catalyst when they are forced to cover.
The detrended Rydex Ratio is -3.59 (very bullish)
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped 2.67 and remains at a level of bearish sentiment only surpassed twice in the past two decades, those times being during the banking crisis in 2009 and the Covid pandemic in 2020.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) is 44.7/25.0 and its highest level since 2013.
S&P 500 Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 dropped to $230.64 a share. It has been steadily declining over the past several sessions. As such, the S&P's forward P/E multiple is 15.9x and at a very slight premium to the "rule of 20" ballpark fair value of 15.8x.
The S&P's forward earnings yield is 6.25%.
The 10-Year Treasury yield closed higher at 4.23% and above resistance. We now view support as at 3.85% with resistance at 4.43%.
Our Near-Term Market Outlook
Critical support levels are likely to be tested Friday and need to hold to stay optimistic.