For the past few sessions, we have been of the opinion that the major equity indices were likely to see a pause in the recent rally. Thursday's action now suggests said pause may be complete and a resumption of progress may be at hand.
Let's take a closer look.
Checking the Charts
All of the indices closed lower Thursday with negative internals on higher trading volume. All closed at or near their intraday lows. However, no technical events of import were generated on the charts, leaving all in short-term uptrends with the exceptions of the Nasdaq Composite and Nasdaq 100 (see above), which are neutral.
There were no violations of support. The Dow Jones Transports (see below) did register a bearish stochastic crossover signal but the signal has not become actionable as no violations of support or trend were seen.
The cumulative advance/decline lines for the All Exchange/NYSE and NASDAQ remain positive and above their 50-day moving averages.
Discussing the Data
The data that had been sending some caution signals has now returned to almost entirely neutral readings, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:+22.38/+21.39 NYSE:+13.53/+34.5 NASDAQ:+32.92/+13.66).
The Equity Put/Call Ratio (0.61), OEX P/C (1.31) and Open Insider Buy/Sell Ratio (30.7) are all neutral as well while the Total P/C (contrary indicator) is a bullish 1.03 as the crowd has become a bit unnerved.
View on Valuation
The S&P 500 is trading at a forward P/E of 16.9x 12-month earnings estimates of $168.99 per share, versus the "rule of 20" implied fair value multiple of 17.2x. The "earnings yield" stands at 5.91%.
What We See Going Forward
The data shift back to neutral combined with the charts suggests the pause that we forecasted may now be complete, allowing for the resumption of progress for the major equity indices. We are maintaining our near-term "positive" outlook.