The charts of the major equity indices recently saw several improvements, including violations of resistance, leaving most in near-term uptrends. However, one important indicator suggests a pause/retracement is to be expected.
Let's break down the latest market charts and data.
On the Charts
All the major equity indices closed higher Friday with positive internals on the NYSE and Nasdaq.
Technical improvements came in the form of the S&P 500 (see below), DJIA, Nasdaq Composite, Nasdaq 100 and S&P MidCap 400 closing above near-term resistance.
That achievement on the S&P 500 and DJIA turned their short-term trends to positive from neutral, leaving all the charts in positive trends except for the Dow Jones Transports, which remains neutral.
Market breadth improved with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turning positive from neutral with all above their 50-day moving averages.
S&P 500: 2,803/2,954
Nasdaq Composite: 8,822/9,144
Nasdaq 100: 9,023/9,368
Dow Jones Transports: 7,852/8,340
MidCap 400: 1,606/1,699
Russell 2000: 1,250/1,480
Value Line Index: 5,025/5,541
While the data is sending a generally neutral message, the one-day McClellan Overbought/Oversold Oscillators on the All Exchange, NYSE and Nasdaq are now overbought and cautionary as a result of last week's market strength (All Exchange: +74.99 NYSE: +74.66 Nasdaq: +75.81). In our opinion, they imply some pause or partial retracement of the recent market's gains over the very short term.
The Open Insider Buy/Sell Ratio remains neutral at 63.9 as is the detrended Rydex Ratio (contrary indicator) at +0.17.
Last week's AAII Bear/Bull Ratio (contrary indicators) at 45.57/30.12 remained bullish as the crowd continued to be skeptical of the recent market advances.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is also neutral at 63.2%.
We still find valuation to be our greatest concern, with the S&P 500 trading at a P/E of 22.4x consensus forward 12-month earnings estimates from Bloomberg of $130.62 per share, as the "rule of 20" finds fair value at a 19.3x multiple, suggesting the index remains overvalued.
The S&P's forward earnings yield is 4.46%, while the 10-year Treasury yield is at 0.68%.
The data and charts continue to suggest we maintain our near-term "neutral/positive" outlook for the equity markets although the OB/OS indicate a pause while valuation needs to be less extended.