Rally May Be Running Low on Fuel

 | Sep 13, 2017 | 11:03 AM EDT
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Charts and data. Data and charts. Both can provide us with clues on what's to come in the market. Sometimes they have slight disagreements.

The charts are currently in good shape from a near-term perspective, but the data is implying some potential for a pause/retracement of the recent rally as some of the "fuel" has been depleted.

On the charts, all of the indices closed higher Tuesday with positive internals. New closing highs were registered on the S&P 500 (see below) and Nasdaq Composite (see below) while the S&P MidCap 400 Index closed above its near-term resistance and 50-day moving average. As such, the short-term uptrends in all of the index charts remain intact as do the uptrends of all of the cumulative advance/decline lines that are also above their 50 DMAs.

Source: Worden

Source: Worden

So there is little to argue with on the charts at this point other than most of the stochastic readings are overbought. Yet, they have not given bearish crossover signals at this stage.

The data, on the other hand, is suggesting some potential for a pause/retracement. All of the McClellan OB/OS Oscillators are overbought (All Exchange:+66.8/+59.88 NYSE:+65.07/+71.84 NASDAQ:+72.29/+51.21) while the OEX Put/Call Ratio is a mildly bearish 1.42 as the pros are leaning to the put side expecting some near-term weakness. The ISEE Put/Call Ratio is bearish as well at 18.5. The balance off the data is largely neutral.

Valuation back at peak levels suggests some of the same. Forward 12-month earnings estimates for the S&P 500 from Bloomberg of $137.23 per share leave a 5.56% forward earnings yield on an 18.2x forward multiple, a decade high.

However, until the current chart trends are altered, we remain of the opinion that said trends should continue to be respected.

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