All the major equity indexes saw significant gains Thursday in response to the weaker-than-expected Consumer Price Index (CPI) data for October. All closed at or near their intraday highs, with positive internals on the New York Stock Exchange and Nasdaq as trading volumes rose more than 1 billion shares higher than the prior session on both.
Charts Close Above Near-Term Resistance
All charts closed above their near-term resistance levels with other positive events registered as well. Only two remain near-term neutral with the rest bullish.
The S&P 500, Dow Jones Industrial Average, Russell 2000 and Value Line Arithmetic Index saw their trends turn positive from neutral. Only the Nasdaq Composite and Nasdaq 100 remain neutral as all others are bullish.
Also, all are now trading above their 50-day moving average while the Dow Industrial, Dow Transports, S&P MidCap 400 and Value Line indexes closed above their 200-day moving averages.
Cumulative market breadth improved with the advance/decline lines for the All Exchange and NYSE turning positive as the Nasdaq stayed neutral.
Some stochastic levels are overbought but no bearish crossover signals have been generated.
McClellan Overbought/Oversold Returns to Overbought
The McClellan Overbought/Oversold Oscillators moved back to overbought in the All Exchange and NYSE with the Nasdaq neutral.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 81% and is now mildly bearish.
The Open Insider Buy/Sell Ratio dipped to 41.6, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) that had been on a very bullish signal rose to -1.53 as leveraged ETF traders rushed to cover their shorts. At -1.53, it remains in bullish territory.
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 1.69 but also remained on a very bullish signal, as is the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 37.3/35.8 as bears continue to outweigh bulls.
S&P 500 Valuation Dips
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 dipped again $225.97. As such, its forward price-to-earnings (P/E) is 17.5 and at a premium to the "rule of 20" ballpark fair value of 16.2.
The S&P 500 forward earnings yield is 5.71%.
The 10-year Treasury yield closed lower and below support at 3.83%. We view new support as 3.80% with resistance at 4.33%.
Our Market Outlook
Thursday's very bullish action makes us more confident in our opinion that the markets have seen their lows. However, we continue to suggest not chasing price while buying weakness near support.