The Friday morning pause is now over and data has returned to a more neutral forecast. Let's take a look at what the charts and data are now telling us.
On the Charts
All of the indexes closed lower Friday with negative internals on heavy options expiration trading volume. Most closed at or near their intraday lows.
Only two technical events of note were generated, with the Russell 2000 Index closing below its short-term trend line, pushing it to neutral trend, while the Value Line Arithmetic Index closed below its 50-day moving average. Otherwise, all of the near-term trends remain positive. The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive.
We would note the Nasdaq Composite Index, Dow Jones Transports, S&P Midcap 400 and VALUA are at high "volume at price" (VAP) levels that may require further work before further notable progress may be achieved.
The data suggesting a pause on Friday morning has now turned neutral -- and that includes the 1-day McClellan Overbought/Oversold Oscillators (All Exchange:+43.24; NYSE:+46.38; Nasdaq:+39.4). The Open Insider Buy/Sell Ratio (79.9), percentage of SPX stocks above their 50 DMAs (66.5) and detrended Rydex Ratio (contrary indicator) at -0.31 are also neutral. Last week's AAII Bear/Bull Ratio (contrary indicator) put bearish sentiment persisting at 38.67/24.0. We view this lack of enthusiasm on the part of the crowd as a positive.
The S&P 500 is trading at a forward P/E multiple of 17.3x consensus 12-month earnings estimate from Bloomberg of $170.46 per share, versus the "rule of twenty" fair value multiple of 17.9x, suggesting the S&P is nearing fair valuation, assuming estimates hold. The 10-year Treasury yield is now 2.07%.
The earnings yield stands at 5.78%.
Given the state of the charts and data after Friday's market pause, we are maintaining our near-term "neutral/positive" outlook for the major equity indexes.