The Nasdaq's recent runup has been something to behold. However, we now suspect some pause/retracement may be in the cards.
On the Charts
The bulk of the equity indices closed lower Thursday with negative internals on the NYSE and Nasdaq as volumes declined on both exchanges from the previous session.
No violations of support or trend were registered while the Nasdaq Composite and Nasdaq 100 made new closing highs once again. However, we now suspect there may be a pause/retracement of those two indices that have been the notable outperformers from the March lows.
In particular, the Nasdaq Composite chart (see below) describes a well-defined up trending channel as of early April. Thursday's action brought price up to the upper channel band that has frequently functioned as a "return line" before further progress was made. Nothing, at this point, suggests that action would not recur.
Regarding trends, they are unchanged with the S&P 500, Nasdaq Composite and Nasdaq 100 bullish with the rest neutral.
Breadth has deteriorated a bit but, in our view, remains neutral for the All Exchange, NYSE and Nasdaq cumulative advance/decline lines.
The data continue to send a generally neutral message.
However, the one-day McClellan Overbought/Oversold Oscillators are now in oversold territory (All Exchange: -53.22 NYSE: -58.92 Nasdaq: -50.07).
The Open Insider Buy/Sell Ratio is neutral as well but slipped to 30.9.
The detrended Rydex Ratio (contrary indicator) is unchanged and neutral at 0.39.
This week's AAII Bear/Bull Ratio (contrary indicator) again saw an increase in bearish sentiment within the crowd and has turned bullish at 47.52/23.55 as bears continued to outnumber bulls.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral, dipping to 61.4%.
Valuation continues to appear extended with the S&P 500 trading at a P/E of 22.1x consensus forward 12-month earnings estimates from Bloomberg of $142.84 per share (up notably from $129.00 as of last week) while the "rule of 20" finds fair value at a 19.4x multiple.
The S&P's forward earnings yield is 4.5% with the 10-year Treasury yield at 0.61%.
Our Near-Term Outlook
While we are maintaining our near-term "neutral/positive" outlook for the major equity indices at this time, the Nasdaq Composite combined with other issues discussed suggest we may now see a pause/retracement.