While Tuesday action was encouraging, we are not out the woods yet. The bulk of the major equity indices have resistance levels of high "volume at price," suggesting some further work may be required before said resistance may be penetrated.
On the Charts
All of the indices closed higher Tuesday with positive internals on lighter trading volumes.
All closed at or near their intraday highs. However, no technical events of import were generated, in our opinion. As such, all remain in short-term downtrends and below their 50-day moving averages.
All of the stochastic levels remain oversold and have yet to generate "bullish crossover" signals.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq, while seeing an uptick, remain negative with only the NYSE's above its 50 DMA.
We would pay particular attention to the high "volume at price" (VAP) levels on the charts all of which are at resistance. In our view, their position suggests some further work may be required before said resistance may be overcome.
The data is mixed with little change on the psychology front.
All of the one-day McClellan Overbought/Oversold Oscillators remain oversold after Tuesday morning's very oversold conditions we viewed to be suggestive of a bounce (All Exchange:-74.29 NYSE:-77.13 Nasdaq:-73.99).
The All Exchange McClellan ratio adjusted one-day OB/OS Oscillator is -74.29 (bullish) and 21 day -23.34 (neutral).
The Open Insider Buy/Sell Ratio (37.8) remains neutral.
Investor sentiment data (contrary indicator) saw little change as a result of the recent downdraft in equity prices as the new AAII Bear/Bull Ratio (28.0/34.76) remains neutral while the Investors Intelligence Bear/Bull Ratio still finds investment advisors overly optimistic at 17.1/57.2.
The detrended Rydex Ratio (contrary indicator) still finds the leveraged ETF traders neutral at +0.07.
Valuation remains compelling based on current forward earnings estimates for the S&P 500. The 12-month forward consensus earnings estimate from Bloomberg for the S&P is now $172.54 per share, leaving the forward P/E multiple at 16.7x while the "rule of twenty" finds fair value at 18.3x. This suggests valuation is considerably more appealing now than just a few weeks ago.
The 10-year Treasury yield is 1.74%.
The earnings yield stands at 5.99%.
While Tuesday's rally was somewhat predictable given the OB/OS data, there has not been a sufficient shift in the evidence to alter our near-term "neutral" outlook for the major equity indices. Valuation appears attractive, but VAP levels suggest more work needs to be done for further progress to be made.