The charts of the major equity indexes saw further deterioration Friday with several violations of support as some near-term trends turned negative. meanwhile, market breadth weakened further, leaving all the cumulative advance/decline lines in downtrends.
Regarding the data, we are not seeing any indications at this point suggesting the current correction has climaxed.
So, although stocks opened strong again Monday, important resistance levels would need to be violated in order to alter our current near-term outlook.
On the Charts
All the major equity indices closed lower Friday with negative internals on the NYSE and Nasdaq with all closing at or near their intraday lows.
The charts weakened further with the DJIA, MidCap 400, Russell 2000 and Value Line Arithmetic Index all closing below their near-term support levels and are now in bearish near-term trends.
Also, the MidCap 400 and Value Line index closed below their 50-day moving averages.
So, we find the DJIA, MidCap, Russell 2000 and Value Line index near-term negative with the rest neutral.
The Nasdaq Composite (see above) and Nasdaq 100 generated bearish stochastic crossovers. Recent weakness in the other indexes was presaged by similar signals.
Breadth weakened further with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turning negative and below their 50 DMAs.
The data finds the McClellan 1-Day Overbought/Oversold Oscillators still in neutral territory, lacking oversold signals (All Exchange: -24.19 NYSE: -36.41 Nasdaq: -16.45).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipped slightly to 1.21 but still finds the ETF traders heavily leveraged long and on a bearish signal.
The Open Insider Buy/Sell Ratio was unchanged at 23.7 and remains bearish. They have yet to see price as attractive enough for purchase.
Last week's contrarian AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicator) both saw an increase in bears and bulls with the AAII remaining neutral (33.8/38.73) and the II bearish at 21.3/52.1.
Market Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg dipped to $207.54 per share. As such, the S&P's forward P/E multiple is 21.5x with the "rule of 20" finding fair value at approximately 18.7x.
The S&P's forward earnings yield is 4.65%.
The 10-Year Treasury yield rose to 1.34% but remains within its current trading range with resistance at 1.4% and support at 1.23%.
Friday's failed rally attempt combined with the deterioration of the charts and lack of data encouragement suggest we maintain our "neutral" macro-equity outlook. We believe more patience may be required to become more optimistic.