Multiple technical improvements have happened on the index charts. However, other factors are tempering our enthusiasm to some degree. Also, we find it hard to believe the recent volatility resulting from trade war headlines has left the scene.
Where does this leave our overall outlook? Let's look closely at the charts, data and valuation.
On the Charts
All of the major equity indices closed higher Tuesday with positive internals and higher trading volumes.
Several chart improvements were achieved. The S&P 500 (see below), Nasdaq Composite, Nasdaq 100, Dow Jones Transports and Russell 2000 closed above their respective resistance levels while the S&P MidCap 400, Russell and Value Line Arithmetic Index managed to close above their near-term downtrend lines.
Also, the Dow Transports and Russell moved back above their 50-day moving averages.
So, we now find the S&P, Nasdaq Composite and 100 in short-term uptrends while the rest are neutral.
However, as a result of those achievements, the stochastic levels for the S&P, DJIA, Nasdaq Composite and 100 are now overbought. As noted in the past, overbought conditions can exist for extended periods. Nonetheless, they do imply a lift in near-term risk potential.
High "volume at price" (VAP) levels are supportive on the DJIA, Nasdaq Composite and Nasdaq 100 while resistant on all others.
The cumulative advance/decline lines are positive on the All Exchange, NYSE and Nasdaq.
The data remains neutral, including all of the one-day McClellan Overbought/Oversold Oscillators (All Exchange:+25.66 NYSE:+19.53 Nasdaq:+34.15).
The detrended Rydex Ratio (contrary indicator) has turned bullish at -2.27 suggesting a more cautious crowd outlook.
The percentage of S&P 500 stocks trading above their 50-day moving averages is a neutral 63.4%.
Tuesday's AAII Bear/Bull Ratio (contrary indicators) also turned bullish at 38.67/23.33, echoing the Rydex data.
However, the Investor's Intelligence Bear/Bull Ratio (contrary indicator) remained bearish at 17.2/47.6, suggesting an excess of bullish sentiment on the part of investment advisors continues.
The Open Insider Buy/Sell Ratio is neutral at 54.4.
Valuation seems appealing, but a bit less so, with 12-month earnings estimates for the S&P 500 dipping to $174.35 per share via Bloomberg, leaving the forward P/E multiple at 17.2x while the "rule of twenty" finds fair value at 18.2x.
The 10-year Treasury yield stands at 1.77%.
The earnings yield is 5.82%.
While the charts and sentiment data have taken on a more positive tone, some cautionary stochastic levels combined with the outlier of possible negative trade war headlines that have been reoccurring result in our shifting our near-term outlook just to "neutral" from "neutral/negative."