Selectivity seems to be intensifying in this ever-rising market. The percentage of S&P 500 stocks above their 50-day day moving averages is falling within a rising index, which we find disconcerting.
Still, overall market data remains neutral and index charts are not showing any worrisome technical developments of late.
On the Charts
All the indices closed higher Friday with positive internals on lighter trading volumes on the NYSE and Nasdaq.
The only notable technical events were the Nasdaq Composite (see below) and Nasdaq 100 posting more new closing highs as the rest saw no changes in trend or violations of resistance although the S&P 500 came close.
So, the S&P, Nasdaq Composite and Nasdaq 100 remain in near-term uptrends with the rest neutral while breadth remains neutral on the cumulative advance/decline lines for All Exchange, NYSE and Nasdaq.
The stochastic readings are a mix of neutral and overbought with no crossovers registered to date.
The data continues to send a generally neutral message.
The one-day McClellan Overbought/Oversold Oscillators turned neutral from oversold (All Exchange: -22.3 NYSE: -15.99 Nasdaq: -28.72).
The Open Insider Buy/Sell Ratio is neutral as well at 34.1 as is the detrended Rydex Ratio (contrary indicator) at 0.38.
Last week's AAII Bear/Bull Ratio (contrary indicator) saw an increase in bearish sentiment within the crowd and has turned bullish at 47.52/23.55 as bears continued to outnumber bulls.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages (se above) is becoming somewhat concerning as the number of stocks trading above their 50 DMAs dropped to 48.3% from 61.4% as the index has been rising. We view this as further evidence of an extremely selective market. Rising indices on shrinking breadth is not a healthy market condition historically.
Valuation continues to appear extended with the S&P 500 trading at a P/E of 22.3x consensus forward 12-month earnings estimates from Bloomberg of $142.78 per share, versus the "rule of 20" fair value multiple of 19.4x.
The S&P's forward earnings yield is 4.48% with the 10-year Treasury yield at 0.63%.
While the narrowing of breadth on the S&P 500 and apparent overvaluation are disturbing, the McClellan OB/OS levels and near-term chart trends suggest we maintain our current near-term outlook of "neutral/positive."