Some Supports & 50 DMAs Violated
All of the major equity indexes closed lower Friday with broadly negative internals but on lighter trading volume than the prior session for both the NASDAQ and NYSE. The charts saw further deterioration with some breaking below near term support levels as well as their 50 DMAs. Cumulative breadth for the all of the exchanges has turned negative as well. The data finds the 1 day OB/OS Oscillators oversold. However, much deeper oversold conditions are capable of being achieved. The rest of the data is now mixed. As such, our shift to a “neutral/negative” near term outlook for the major equity indexes as of Friday before the open remains intact.
On the charts, all of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ as trading volumes dipped.
- More damage was seen as the COMPQX (page 3), NDX (page 3), MID (page 4), RTY (page 5) and VALUA (page 5) closed below their respective support levels.
- The MID, RTY and VALUA also closed below their 50 DMAs.
- So we now find all of the eight indexes we follow in short term downtrends.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are now negative as well.
- All of the charts are at high “volume at price” (VAP) levels seen as supportive. If they should break, it would add another negative to the equation.
- The stochastic levels for the SPX (page 2), DJI (page 2), COMPQX and NDX are oversold but are capable of becoming more so while not having yet flashed “bullish crossover” signals.
The data is mixed.
- The 1-day McClellan OB/OS Oscillators are now in oversold territory (All Exchange:-63.86 NYSE:-61.75 NASDAQ:-68.06). However, we would note readings below -100 are not uncommon before a bounce appears.
- The detrended Rydex Ratio (contrary indicator) at +0.1 is neutral as is last week’s AAII Bear/Bull Ratio (contrary indicator) at 29.0/33.0.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish as advisors are largely bullish at 16.3/58.0.
- The % of SPX stocks above their 50 DMAs (46.9) is neutral as is the Open Insider Buy/Sell Ratio (37.3).
- The 12-month forward consensus earnings estimate from Bloomberg for the SPX dropped to $172.78, leaving the forward p/e at a 17.0 multiple while the “rule of twenty” finds fair value at 18.1 suggesting the markets are somewhat undervalued.
- The 10-Year Treasury yield is 1.86%.
- The earnings yield stands at 5.89%.
In conclusion, Friday’s chart action combined with current data suggests we maintain our near term “neutral/negative” outlook for the major equity indexes at this time.