All the major equity indexes closed lower on Wednesday with negative NYSE and Nasdaq internals as trading volumes rose on both from the prior session. Most closed near their lows of the session as three indexes broke support, shifting the trend on two from neutral to bearish. While there was some weakening of market breadth, the data dashboard is unchanged in sending its largely neutral readings except for high bearish sentiment among the crowd that should be viewed as a potential positive. However, forward valuation for the S&P 500 remains quite elevated versus ballpark fair value. As such, the weight of the evidence continues to suggest that any buying should be done on a very selective basis given weakening breadth and extended valuation as not all boats are rising with the tide.
On the charts, the major equity indexes closed lower yesterday with negative NYSE and Nasdaq internals on heavy volume.
- Some technical damage occurred as the DJT , MID and VALUA closed below their support levels that shifted the MID and VALUA trends to bearish from neutral.
- The DJI and DJT also remain bearish with the SPX, COMPQX and NDX bullish and the RTY neutral.
- Cumulative market breadth deteriorated on the Nasdaq as it turned negative from neutral with the All Exchange and NYSE neutral.
- No stochastic signals were generated.
The data dashboard remains largely neutral and still lacks any high-probability movement signals for the near term.
- The 1-day McClellan OB/OS Oscillators are still neutral (All Exchange: -18.37 NYSE: -27.58 Nasdaq: -12.0).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) stayed neutral, dipping to 29%.
- The Open Insider Buy/Sell Ratio rose to 69.7. It also remains neutral.
- The detrended Rydex Ratio (contrarian indicator) rose to +0.38, also staying neutral.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.51 and remains just inside very bullish territory. In our view, it remains encouraging, but a bit less so.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) is still neutral at 23.9/46.5%.
- The forward 12-month consensus earnings estimates from Bloomberg for the SPX saw a lift to $2223.01. However, the valuation gap remains wide and is still disconcerting with the SPX’s forward p/e at 18.7 versus the “rule of 20” ballpark fair value of 16.4, suggesting valuation is extended.
- Its forward earnings yield is 5.34%.
- The 10-year Treasury yield closed lower at 3.64%. It is short-term neutral with support at 3.56% and resistance at 3.81%.
In conclusion, while some of the indexes are still in uptrends, the number of stocks participating remains very selective as the charts and market breadth are mixed and questionable. As well, extended valuation is a concern. However, the high level of crowd fear is somewhat of a counterbalance. Thus, we remain of the opinion that any buying should be done on a highly selective basis.