While no sell signals have appeared on the charts to date, investor sentiment levels and extended valuation continue to suggest the market's shock absorbers are very weak, leaving the markets vulnerable to any unforeseen negative news.
On the Charts
The indices closed higher Thursday with mixed internals on the NYSE and Nasdaq on light trading volume. The only technical event of note generated was the MidCap 400 (see below) posting another new all-time closing high.
The chart near-term trends are unchanged, with the S&P 500, Nasdaq Composite, Nasdaq 100, MidCap 400 and Russell 2000 bullish, as the DJIA, Dow Jones Transports and Value Line Arithmetic Index remain neutral.
Market breadth remains positive with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq in uptrends and above their 50-day moving averages.
We have yet to see any notable sell signals generated. As such, the charts remain generally constructive.
The Data Have Yet to Change Their Tone
While the one-day McClellan Overbought/Oversold Oscillators remain neutral on the All Exchange, NYSE and Nasdaq (All Exchange: -2.92 NYSE: -8.27 Nasdaq: +0.48), the psychology data and valuation continue to imply the markets are on thin ice should some unexpected negative news hit the tape.
The Open Insider Buy/Sell Ratio is neutral at 27.1 but remains in a negative downtrend as insiders have consistently been sellers within the rally.
In contrast, the leveraged ETF traders, measured by the detrended Rydex Ratio (contrarian indicator), remains in bearish territory as the leveraged long ETF traders continue their leveraged long exposure at 1.48.
Last week's Investors Intelligence Bear/Bull Ratio (contrary indicator) saw little change at a bearish 17.2/63.6 as advisors remain at historically high levels of bullish sentiment. The AAII Bear/Bull Ratio saw little change at 25.28/46.84 and remains near peak levels seen over the past decade as well. New data for those measures will appear Tuesday.
S&P 500 Valuation
The drop in the forward 12-month consensus earnings estimates from Bloomberg from $160.80 last week to today's $158.43 has stretched the S&P 500's overvaluation even higher. The S&P now trades at a forward P/E multiple of 23.4x while the "rule of 20" still finds fair value of 19.1x.
The S&P's forward earnings yield is 4.28% with the 10-year Treasury yield at 0.93%.
The tug-of-war between the charts and data remains a stalemate, in our view, causing us to maintain our near-term "neutral" outlook. It will be interesting to see how things progress after Santa leaves the building.