The major equity indexes closed mixed Tuesday with mixed NYSE internals while the NASDAQ’s were positive as volumes dipped on both from the prior session. All closed near their intraday lows. However, there were no violations of support, thus leaving all the indexes in near-term neutral trends, although cumulative market breadth remains negative.
The data is giving some mild encouragement with the 1-day McClellan OB/OS Oscillators staying oversold while two of the charts find their stochastic levels oversold as well. Yet forward 12-month consensus SPX earnings estimates from Bloomberg continue to slip, leaving the SPX trading at a slight premium to ballpark fair value via the “rule of 20”. As such, the oversold conditions offer some hope, but there is not enough evidence present, in our opinion, to imply the recent correction is complete.
On the charts, the major equity indexes closed mixed yesterday with the NYSE having negative breadth but positive up/down volume while the NASDAQ was positive on both counts.
- Buying evaporated near the close with all near their intraday lows.
- Importantly, there were no violations of support, leaving all in near-term neutral trends and above their 50 DMAs.
- The SPX, and MID closed at support that should be monitored closely, in our opinion.
- Unfortunately, the cumulative advance/decline lines for the All Exchange, NYSRE and NASDAQ remain negative.
- The stochastic levels for the NASDAQ Composite and Nasdaq 100 are oversold but await bullish crossover signals.
The McClellan OB/OS Oscillators remain in oversold territory, still offering some encouragement (All Exchange: -73.95 NYSE: -88.8 NASDAQ: -65.3).
- The % of S&P 500 issues trading above their 50 DMAs (contrarian indicator) lifted slightly to 76%, staying neutral.
- The Open Insider Buy/Sell Ratio rose to 44.0% and remains neutral as well.
- The detrended Rydex Ratio (contrarian indicator) lifted to -0.31 and is also neutral.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) was unchanged at 1.28, staying on a bullish.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) was also unchanged with the number of bears dropping and bulls at 27.8/44.4 (mildly bullish). Its 3-week moving average is mildly bullish at 70.75.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX dipped further to $232.82. The valuation spread narrowed a bit but is still at a slight premium to ballpark fair value via the “rule of 20” with the SPX forward multiple at 17.7 versus 17.0.
- The SPX forward earnings yield is 5.64%.
- The 10-year Treasury yield closed higher at 3.05%. Support 2.84% with resistance at 3.07%.
In conclusion, while the McClellan 1-day OB/OS Oscillators with some oversold stochastic levels have, in our view, turned down the temperature of the recent correction, there is insufficient evidence to declare with confidence that we are out of the woods. Some caution may still be prudent as a result.