Stocks are surging Monday morning. However, today's close will be of greater importance.
Two of the indexes violated their resistance levels Friday, leaving the charts in a mix of neural and positive trends. The data remains generally neutral.
Still, an uptick in insider buying activity may be worthy of note.
Let's break it all down for you.
On the Charts
The bulk of the equity indices closed higher Friday with positive internals, leaving only the Dow Jones Transports in the loss column. Most closed near their intraday highs, recovering from a weak open.
The only important technical events generated were the Nasdaq Composite (see above) and Nasdaq 100 closing above their respective short-term resistance levels. They are the only indices in near-term uptrends with the rest of the index charts neutral.
While breadth was positive on the day, it was not sufficient to change the near-term negative trends regarding cumulative advance/decline lines on the All Exchange, NYSE and Nasdaq. These cumulative A/Ds are, however, above their 50-day moving averages.
The data remains mostly neutral.
The one-day McClellan Overbought/Oversold Oscillators are neutral on the All Exchange and Nasdaq and NYSE (All Exchange: -21.42 NYSE: -34.88 Nasdaq: -10.31).
The Open Insider Buy/Sell Ratio is of interest in that insiders have increased their buying activity up to 85.9. While remaining neutral, we find their action encouraging.
The detrended Rydex Ratio (contrary indicator) at +0.04 is also neutral.
Last week's AAII Bear/Bull Ratio (contrary indicators) at 48.9/26.37 continued to send a bullish message as the crowd has yet to embrace the market's strength from the March lows.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral as well at 57.0%.
Valuation continues to be our largest concern. The S&P 500 is trading at a P/E of 22.1x consensus forward 12-month earnings estimates from Bloomberg that have dipped to $129.58 per share, versus the "rule of 20" fair value multiple at 19.4x, suggesting the index remains overvalued.
The S&P's forward earnings yield is 4.52% with the 10-year Treasury yield at 0.64%.
Despite of very strong move up Monday morning, we are maintaining our near-term "neutral" outlook for the major equity indices as cumulative breadth and valuation need improvement while insider activity and investor sentiment are encouraging within the combination of neutral and positive chart trends.