Volumes are rising on the Nasdaq and NYSE and the charts are still sending a positive message. But on the data front, there are some clouds gathering that suggest the indices may soon encounter stronger headwinds.
On the Charts
All of the indices closed higher on Friday, with positive internals on higher volume. Every index closed above near-term resistance, except the Dow Jones Industrials and the Nasdaq 100 Index, which both closed at resistance. The Russell 2000 Index changed to a positive trend, and all of the indices and now in near-term uptrends.
The cumulative advance-decline lines for the All Exchange, NYSE and Nasdaq are all still positive and above their 50-day moving averages. The stochastic levels are overbought across the board, but have not trigged bearish crossovers.
On the data front, all of the McClellan Overbought/Oversold Oscillators are now flashing overbought (All Exchange: +52.92/+77.13; NYSE:+57.34/+101.21; Nasdaq:+53.22/+59.28) -- suggesting some caution may be warranted. The percentage of S&P 500 stocks trading above their 50-day MAs has turned cautionary as well, at 82.8%.
But on a positive note, the "crowd" is remarkably ambivalent to the recent market gains. Leveraged ETF traders are dead neutral -- at 0.53 on the detrended Rydex Ratio (contrary indicator). They are typically highly optimistic near market peaks.
The S&P 500 is trading at a forward P/E multiple of 16.8x on consensus 12-month estimates of $172.22 per share, versus the "rule of twenty" fair-value multiple of 17.5x. As such, the S&P continues to appear to be slightly undervalued.
Some of the data is suggesting near-term gains may become harder to come by, but the charts and psychology data are still positive, so our near-term outlook remains "neutral/positive."