What Messages Are the Markets Sending?

 | Sep 12, 2018 | 11:30 AM EDT
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The bulk of the major equity indices closed higher Tuesday with the exception of the Dow Jones Transports, which had made a new closing high in Monday's session. NYSE internals were positive but the Nasdaq Composite advance came on negative breadth and up/down volume, taking some of the shine off of the advance.

No support/resistance levels were violated as the Transports and S&P MidCap 400 (see below) remain in short-term uptrends while the rest are currently neutral. The cumulative advance/decline lines remain negative for the All Exchange, NYSE and NASDAQ but all are still above their 50-day moving averages.

Source: Worden

One minor positive event was registered on the Value Line Arithmetic Index (see below) as it flashed a "bullish stochastic crossover signal."

Source: Worden

Data

The data continues to send a generally neutral message with all of the McClellan Overbought/Oversold Oscillators remaining neutral (All Exchange:-35.14/+19.95 NYSE:-40.58/+28.98 NASDAQ:-30.85/+15.22).

The Equity Put/Call Ratio (0.61) and Open Insider Buy/Sell Ratio (49.5) are neutral as well while the Total P/C (contrary indicator) and OEX P/C remain on bullish signals at 0.88 and 0.74, respectively.

Valuation

The S&P 500 is trading at forward P/E multiple of 17.1x consensus 12-month earnings estimates of $169.05 per share, versus the "rule of 20" implied fair value of 17.x. The "earnings yield" stands at 5.85%.

Our Outlook

Given the current state of the charts and data, we believe it is appropriate to maintain our near term "neutral/positive" outlook for the major equity indices.

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