The cautionary signals of one week ago and prior to the June 11 market swoon are no longer present as the data are now neutral.
The bulk of the index charts remain in short-term uptrends that we believe should be respected until proven otherwise as we keep a close eye on valuation, which is the outlying concern regarding further market progress.
Now for a closer look...
On the Charts
Source: Worden
The major equity indices closed mixed Thursday with negative internals on the NYSE while the Nasdaq's were mixed.
Overall trading volumes declined on the NYSE and rose on the Nasdaq.
No violations of support/resistance or trend were generated on the charts, leaving all but the Dow Jones Transports (see above) and S&P MidCap 400 in short-term uptrends and all above their 50-day moving averages.
Stochastic levels are neutral across the board while the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive and above the 50 DMAs.
So, at this point, no cautionary sell signals have been generated, suggesting current trends should continue to be respected.
Digging Into the Data
The data is now mostly neutral, including the one-day McClellan Overbought/Oversold oscillators that were previously overbought (All Exchange: +1.75 NYSE: -8.47 Nasdaq: +11.2).
The Open Insider Buy/Sell Ratio is right in the middle of its neutral range at 55.8 while the detrended Rydex Ratio (contrary indicator) slipped into mildly bearish territory at 0.86 as the leveraged ETF traders have started to increase their leveraged long exposure.
The cautionary signal from the counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages remains bearish at 85.7%.
Valuation
Valuation continues to appear extended and remains a concern. The S&P 500 is trading at a P/E of 24.2x consensus forward 12-month earnings estimates from Bloomberg of $128.80 per share, while the "rule of 20" finds fair value at a multiple of 19.3x.
The S&P 500's forward earnings yield is 4.13% with the 10-year Treasury yield at 0.69%.
Our Near-Term Market Outlook
We are maintaining our near-term "neutral/positive" outlook for the major equity indices.
