Two equity indices closed above resistance Thursday with the S&P 500 making a new closing high. This leaves the near-term trends a combination of bullish, neutral and bearish as market rotation, appears to be continuing.
Market breadth remains positive while the data saw some minor improvement on a key indicator. However, insider buying activity, which was already weak, continues to abate.
On the Charts
The equity indices closed mixed Thursday with positive breadth but with negative up/down volume on the NSYE and Nasdaq as trading volumes dipped from the previous session.
The two important technical events generated on the charts were seen with S&P 500 (see above) and Nasdaq 100 (see below) closing above resistance, with the S&P managing to post a new closing high.
The near-term trends are positive on the S&P, Nasdaq Composite, Nasdaq 100, Russell 2000 and Value Line Arithmetic Index as the DJIA and MidCap 400 remain neutral with the Dow Jones Transports in a near-term downtrend. The trends, in our opinion, continue to suggest some market rotation is being executed.
Cumulative breadth remains positive on the All Exchange, NYSE and Nasdaq and above their 50-day moving averages.
No stochastic signals were generated during Thursday's session.
On the Data
The McClellan 1-Day Overbought/Oversold Oscillators remain neutral except for the Nasdaq slightly overbought (All Exchange: +41.08 NYSE: +26.93 Nasdaq: +52.22).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipped to 1.22 but remains in bearish territory.
This week's contrarian AAII bear/bull ratio (24.18/39.18) stayed neutral but saw a lift in bullish sentiment as did the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.25/53.6, which remains on a bearish signal.
The Open Insider Buy/Sell Ratio dropped further into bearish territory at 19.5. Insider buying interest remains anemic.
Valuation continues to appear extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg at $191.70 per share. The S&P's forward P/E multiple is 22.1x, with the "rule of 20" finding fair value at 18.5x. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
The S&P's forward earnings yield is 4.52%.
The 10-year Treasury yield closed at 1.46% and below what we viewed as support at 1.49%. We now see support at 1.4% with resistance at 1.55%. We continue to believe the moves in the 10-year yield may well have the greatest influence over the near-term action on the equity indices.
We remain near-term "neutral/positive" in our macro-outlook for equities.