The indexes closed mixed on Tuesday, but recovered well off their intraday lows. Some minor improvements were seen on the charts but, for the most part, the current combinations of neutral and negative short-term trends remain intact.
The data remain mixed, but now find the NYSE overbought. So, in spite of yesterday's intraday turnaround, there was not a sufficient shift in the weight of the evidence to alter our near-term "negative" outlook for the major equity indexes.
As well, extended valuation of the S&P 500, investment advisor complacency, heavy use of margin debt and market breadth that remains debatable continue to be bothersome.
On the charts, the S&P 500, Dow Jones Industrials, Nasdaq and Dow Jones Transports closed lower on the day.
The S&P Midcap 400, the Russell 2000 and the Value Line Arithmetic Index closed higher.
Both the S&P Midcap 400 and the Value Line Arithmetic Index managed to close back above their 50-day moving averages, as the S&P Midcap 400 also violated its short-term downtrend line that is now neutral.
The S&P 500 and Dow Jones Industrials tested support, but held. However, in spite of the rally off the intraday lows, the S&P 500, Dow Jones Industrials, Russell 2000 and Value Line Arithmetic Index remain in near-term downtrends, as the others are neutral. Cumulative market breadth improved marginally for the mid and small caps.
The data remain mixed. The All Exchange and NASDAQ McClellan OB/OS Oscillators are neutral (All Exchange:+23.88/+33.7 NASDAQ:+2.81/+1.78). However, both of the NYSE OB/OS levels are now in overbought territory at +50.4 and 66.06.
The OEX Put/Call Ratio finds the pros neutral at 1.01, while both the Total and Equity Put/Call Ratios (contrary indicators) find the crowd nervous and long puts at 0.91 and 0.79 respectively.
Of continuing concern is the complacency on the part of investment advisers as seen by the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 18.3/55.8.
As well, on a market cap/price to sales basis, the S&P 500 is at its highest valuation ever at 1.93, while margin interest has vaulted 21% on a y/y comparison. As such, we continue to believe current market risk outweighs reward for the near term.
Forward 12-month earnings estimates for the S&P 500 from IBES of $132.99 leave a 5.65% forward earnings yield on a 17.7x forward multiple, near a decade high.
