All the major equity indexes closed lower Friday, posting notable loses, ending the session at or near their intraday lows. They also violated their respective near-term support levels leaving all but one in near-term downtrends.
As well, cumulative market breadth deteriorated further with all the exchanges showing negative breadth and all below their 50 DMAs. Yet, while the charts have yet to send signals suggesting the recent market declines from the March highs are complete, some encouragement was coming from the data dashboard as discussed below.
Nonetheless, while the data may be suggesting some relief, the charts have yet to imply we have seen a completion of the current market correction.
On the charts, all the major equity indexes saw notable losses Friday as they violated support leaving all in near-term downtrends, except the DJT which remains neutral. All closed at or near the lows of their session ranges. The DJI, which was neutral, reversed to negative.
And while the charts sank, cumulative market breadth for the All Exchange, NYSE and NASDAQ remained negative and below their 50 DMAs after making lower lows.
The stochastic levels remained oversold as was the case all last week and have yet to register bullish crossover signals. As such, the charts were not suggesting a shift in direction at this point.
However, the data is offering some encouraging signs.
- The McClellan 1-Day OB/OS oscillators are back in oversold territory (All Exchange: -65.98 NYSE: -68.88 NASDAQ: -63.55).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) dropped to 27% and remained neutral although it was approaching the 25% level that had been associated with market lows.
- Also, the Open Insider Buy/Sell Ratio rose further to 85.6%. While staying neutral, it showed a continued increase in buying appetite on their part.
- Meanwhile, the detrended Rydex Ratio (contrarian indicator) found the leveraged ETF traders increasing their leveraged short exposure to -1.85 from -1.39. Thus, the current state of the insider/Rydex relationship continued to add weight to the positive side of the scales.
- As well, last week’s AAII Bear/Bull Ratio (contrarian indicator) rose to a very bullish 2.25. It has seen these levels 6 times in the past 20 years with all but one resolving into a rally. The only outlier was the 2008-2009 financial crisis. Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) was 33.3/32.1 as bears outnumbered bulls. Both will release new data tomorrow that will likely, in our opinion, show a further increase in fear. Historically, these levels have been buying opportunities for those with longer term horizons.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX dropped to $235.59 from $236.18. Thus, the SPX forward multiple was 17.5 with the “rule of 20” finding ballpark fair value at 17.1.
- The SPX forward earnings yield was now 5.7%.
- The 10-year Treasury yield closed higher at 2.89. We view resistance as 3.0%. Support was 2.5%.
In conclusion, while the data implied some relief may be forthcoming, the charts have yet to send essential signals that would suggest the recent market weakness had been exhausted.
SPX: 4,115/4,243 DJI: 32,828/33,492 COMPQX: 11,962/12,840 NDX: 12,597/13,493
DJT: 14,675/14,934 MID: 2,483/2,581 RTY: 1,800/1,940 VALUA: 8,828/9,000