All the major equity indexes closed lower Monday with negative internals on the NYSE and Nasdaq as trading volumes rose from the prior session.
All closed at or near their intraday lows. Only one technical event occurred as one index turned neutral from positive, with the rest still bullish as all support levels held. The McClellan 1-day OB/OS Oscillators that were suggesting some potential weakness at the open proved prescient and are now back at neutral levels, as is the bulk of the data. However, the % of SPX issues trading above their 50 DMAs and valuation remains cautionary.
As such, while we are of the opinion that stocks that pulled back yesterday near support while remaining in uptrends can be bought, it is too early to presume said consolidation is complete.
On the charts, all the major equity indexes closed lower yesterday with negative NYSE and Nasdaq internals on higher volume.
- All closed near their lows of the session. Yet the only technical event of note was the Dow Jones Industrial Average closing below its near-term uptrend line for the first time since its October low and is now neutral as the rest of the indexes remain in near-term uptrends and above their 50 DMAs.
- No support levels were violated as well.
- Cumulative market breadth did slip for the Nasdaq, which is now neutral and below its 50 DMA, while the All Exchange & NYSE remain bullish.
- No stochastic signals were generated.
The McClellan OB/OS Oscillators that were waving a yellow flag at the open have returned to neutral; easing is a prior cautionary signal (All Exchange: +9.72 NYSE: +24.0 Nasdaq: +0.87).
- However, the % of S&P 500 issues trading above their 50 DMAs (contrarian indicator) remains in the bearish territory at 85% and near peak levels seen only twice in the past two years.
- The Open Insider Buy/Sell Ratio moved higher to 53.2, staying neutral.
- The detrended Rydex Ratio rose to -0.63, also staying neutral. It has given up its strong bullish implications that were present just prior to the recent rally.
- The new AAII Bear/Bull Ratio rose to 1.46, remaining bullish versus its very bullish signal prior to the rally.
- Also, the new Investors Intelligence Bear/Bull Ratio at 30.5/41.7 remains neutral, with bulls now outnumbering bears.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX slipped further to $224.32. As such, its forward p/e is 17.7 and at a premium to the “rule of 20” ballpark fair value of 16.3.
- The SPX forward earnings yield rose to 5.66%.
- The 10-year Treasury yield closed higher at 3.7%. We see support at 3.56%, with resistance at 3.95%.
In conclusion, while yesterday’s correction tempered the cautionary OB/OS signals that now suggest buying issues near support can commence, given the current valuation and the % 50 data, it would be premature to assume a period of some further consolidation has been completed. We remain buyers on weakness.