Although the indices closed well above intraday lows on Friday, with a few minor improvements on the charts, the action did not alter our near-term outlook.
On the Charts
The indices closed mixed Friday, with positive internals on the NYSE and Nasdaq, and well above their intraday lows. The Dow Jones Transports and Russell 2000 Index closed lower on the day while the rest advanced. The S&P Midcap 400 closed above its short-term downtrend line, turning trend neutral, while the Value Line Arithmetic Index closed above its 50-day moving average.
The overall action did little to change our concerns. The trends are still a mix of neutral and negative while cumulative breadth for the All Exchange, NYSE and Nasdaq remains negative and below 50 DMAs. We would need to see some improvement in breadth and bullish technical violations on increased volume to become more encouraged.
Data Is Neutral
All of the 1 day McClellan Overbought/Oversold Oscillators are neutral (All Exchange:-36.24; NYSE:-49.78; Nasdaq:-40.48). Insiders have yet to show any strong appetite for purchasing their own stock, with a neutral 37.5% Open Insider Buy/Sell Ratio. The detrended Rydex Ratio (contrary indicator) also remains neutral, at 0.56, as is the percentage of SPX stocks trading above their 50 DMAs, at 55.1%.
The S&P 500 is trading at a forward P/E multiple of 16.8x consensus 12-month earnings estimates from Bloomberg of $171.57 per share, versus the "rule of twenty" fair value multiple of 17.5x.
The earnings yield stands at 5.96%.
Although the indices saw some late-day buying Friday that lifted most to their intraday highs, negative overall market breadth combined with the current chart trends are questionable enough for us to maintain our near-term "neutral/negative" outlook for the major equity indices.