Recent action now suggests that the stock market may be entering a new phase.
All of the indices closed higher Tuesday on higher trading volumes and positive internals.
The notable technical achievements came from the S&P 500 (see below), Dow Jones Transports, S&P MidCap 400 and Russell 2000 closing above their near-term resistance levels, turning their trends positive from neutral.
The Nasdaq Composite closed back above its short-term uptrend line. As such, only the DJIA (see below) and Value Line Arithmetic Index are neutral with the rest now positive.
The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain in uptrends, too. So, the charts suggest the consolidation period may have been completed.
Digging Into the Data
The data remains largely neutral.
While the 1-day McClellan Overbought/Oversold Oscillators have slipped back into overbought levels (All Exchange:+57.03/+82.55 NYSE:+56.05/+102.9 NASDAQ:+60.1/+67.38), they are mildly so.
The Open Insider Buy/Sell Ratio (31.5), detrended Rydex Ratio (-0.38) and recent AAII Bear/Bull Ratio (28.33/35.67) are neutral as well.
There are no blatant warning signals present.
View on Valuation
Valuation continues to be appealing as it remains below fair value. The S&P 500 is trading at a forward P/E multiple of 16.3x consensus 12-month earnings estimates from Bloomberg of $168.07 per share, versus the "rule of 20" implied fair value multiple of 17.3x.
The "earnings yield" stands at 6.12%.
The ability of several of the charts managing to violate resistance and a lack of notable cautionary data suggest the period of consolidation we have recently discussed may have been completed. We maintain our near-term "positive" outlook for the major equity indices.