The charts of the major equity indices have seen several positive developments over the past two sessions while cumulative breadth has improved as well.
Meanwhile, sentiment data continue to suggest a major market bottom may well be in the process of being established.
On the Charts
The major equity indices closed mixed Wednesday with positive internals on the NYSE and Nasdaq as trading volumes increased from Tuesday's record gains.
Yesterday's action was more mixed as the Nasdaq Composite and Nasdaq declined as the rest posted further gains.
During Wednesday's session, the Dow Jones Transports, S&P MidCap 400 and Value Line Arithmetic Index all closed above their newer resistance levels while the Dow Transports and Russell 2000 (see below) managed to close above their near-term downtrend lines for the first time within the recent selloff.
As such, their trends are now neutral as the remainder are negative.
Breadth has improved as well as the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq are now neutral versus their previous negative trend.
"Bullish stochastic crossover" signals have been registered on all the index charts as well.
The data continues to send some very strong bullish signals.
While the McClellan one-day McClellan Overbought/Oversold Oscillators have turned neutral (All Exchange:+44.86 NYSE:+44.98 Nasdaq:+45.61), the Open Insider Buy/Sell Ratio at 241.5 continues to find insiders aggressively buying their own stock (see below).
The Open Insider Buy/Sell Ratio is 241.5% (very bullish)
In contrast, the detrended Rydex Ratio (contrary indicator) at -3.72 remains near a decade high of ETF trader leveraged short exposure. We reiterate that over the past decade, this insider/Rydex setup has consistently resulted in marking an important market bottom four out of four times.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is bullish at 1.0%.
The S&P 500 is trading at a P/E of 15.2x consensus forward 12-month earnings estimates from Bloomberg $163.38 per share, compared to the "rule of 20" fair value multiple of 19.1x, still suggesting the index remains significantly undervalued.
The S&P forward earnings yield is 6.6% with the 10-year Treasury yield at 0.86%.
Our Near-Term Outlook
Based on the chart improvements and data we maintain our near-term "neutral/positive" outlook for the equity markets.