The roller-coaster ride continues.
All the major equity indices closed at or near their intraday lows Tuesday with some technical weakness after reacting to President Trump’s surprise tweet that he is canceling stimulus talks until after the election. However, all support levels held, which we view as encouraging.
On the Charts
Source: Worden
The equity indices closed lower Wednesday with negative internals on heavier trading volume as selling pressure entered the market in the latter part of the session. All closed near their intraday lows.
Some technical damage was registered on the S&P 500 (see above), Nasdaq Composite and Nasdaq 100 as all closed below their short-term uptrend lines and are now neutral.
Also, the S&P and Nasdaq 100 closed below their 50-day moving averages. In our opinion, this was largely the result of the declines in the FAANG components.
However, we think it important that no support levels were violated on any of the charts. As such, the S&P, and the Nasdaq indices are now neutral with the rest remaining in positive trends.
And while breadth was negative Tuesday, the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain near-term positive and above their intermediate-term downtrend lines.
Data Remain Mixed
The one-day McClellan Overbought/Oversold Oscillators returned to neutral from overbought, which had suggested some potential for consolidation of gains Tuesday morning (All Exchange: +41.85 NYSE: +40.3 Nasdaq: +45.71).
The Open Insider Buy/Sell Ratio is neutral, dipping to 40.2 while the detrended Rydex Ratio (contrary indicator) remains bearish at +0.91 as the leveraged ETF traders remain leveraged long.
This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator) saw another slight rise in bearish sentiment to 21.8/52.5 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 43.15/27.72.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving average is neutral at 52.9%.
Valuation
The valuation gap remains extended but less so, with the S&P 500 now trading at a P/E of 21.6x consensus forward 12-month earnings estimates from Bloomberg of $155.57 (which now include Q3 estimates) while the “rule of 20” finds fair value at 19.3x.
The S&P’s forward earnings yield is 4.63% with the 10-year Treasury yield at 0.7%.
Near-Term Outlook
Tuesday’s weakness was not sufficient to alter our near-term “neutral/positive” outlook for the equity markets in general.
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