Some data is moving from bullish to bearish, while we saw positive internals on the NYSE and Nasdaq on declining volumes. We are still near-term "positive," but expect some sideways consolidation, or a pause of the recent rally.
On the Charts
The indices closed with positive internals on Friday, as the S&P 500, Dow Jones Industrials, Dow Jones Transports, Russell 2000 Index and Value Line Arithmetic Index all closed higher.
The DJI, in fact, closed above its near-term resistance level. But a closer look at the chart shows its progress was halted when it reached the intermediate-term downtrend line from last October. This is the third time that resistance has held. We are not confident in making a call as to whether or not that trend will be violated to the upside over the near term, but we are monitoring it closely.
Ultimately, all the indices, except the Russell 2000 Index, are in near-term uptrends, as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
Digging Into the Data
The data is still sending a a cautionary message, as all of the McClellan Overbought/Oversold Oscillators remain overbought (All Exchange:+92.9/+121.16 NYSE:+108.34/+152.64 Nasdaq:+80.03/+94.91). We view these levels as a potential headwind for progress. The pros are still betting on weakness appearing over the near term, as the OEX Put/Call Ratio are heavily weighted in puts, at a very bearish 2.77 reading. In addition the percentage of SPX stocks trading above their 50-day moving averages stands at 82.1%. Counterintuitively, it suggests a possible excess to the upside -- as occurred in 2017.
Valuation Still Appealing
Valuation still seems to be appealing, as it remains below fair value, in spite of the forward 12-month earnings estimates for the SPX via Bloomberg dipping to $168.69, leaving the forward 12-month P/E ratio for the SPX at 16.0 versus the "rule of 20" implied fair value of a 17.3x multiple. The "earnings yield" stands at 6.23%.
The charts have not yet flashed any notable cautionary signals, so we are maintaining our near-term positive outlook for the indices. But the data is increasingly suggesting a pause/retracement of January's gains.