Charts of the major equity indices continue to improve. However, the data dashboard is now sending signals suggesting we may be entering a period of slower progress with potential for a pause/consolidation of recent gains.
Let's look at the latest charts and data.
On the Charts
The equity indices closed higher Thursday with positive internals on the NYSE and Nasdaq as trading volumes rose on the NYSE and declined on the Nasdaq.
More bullish technical events were registered on the charts with the S&P 500 (see above) and Value Line Arithmetic Index closing above their near-term resistance levels while the Dow Jones Transports made another new closing high.
So, all the indices remain in near-term uptrends and above their 50-day moving averages.
Market breadth improved as well with the All Exchange, NYSE and Nasdaq cumulative advance/decline lines staying positive and above their 50 DMAs.
We would note all the stochastic readings are now overbought. However, no bearish crossover signals have been generated thus far.
A Turn in the Data?
The data have turned a bit more cautionary for the short term and, in our opinion, may be forecasting an entry into a period of slower progress with a pause/consolidation of recent gains.
The one-day McClellan Overbought/Oversold Oscillators increased their overbought conditions to somewhat notable levels (All Exchange: +94.82 NYSE: +96.59 Nasdaq: +95.11).
The Open Insider Buy/Sell Ratio is neutral, declining to 34.2 while the detrended Rydex Ratio (contrary indicator) shows the leveraged ETF traders increased their leveraged long exposure to +1.04. The dynamic of insiders increasing their selling activity while the Rydex finds the leveraged ETF exposure at increasingly higher levels has frequently been a prescient inflection signal.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) saw another slight rise in bearish sentiment to 21.8/52.5 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 43.15/27.72.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is neutral at 52.9%.
The valuation gap remains extended with the S&P 500 trading at a P/E multiple of 22.2x consensus forward 12-month earnings estimates from Bloomberg of $155.51 per share while the "rule of 20" finds fair value at 19.2x. However, this valuation extension has been present for the past several months.
The S&P's forward earnings yield is 4.51% with the 10-year Treasury yield at 0.77%.
While the charts are positive, increased data signals suggest we may be entering a period where a pause/consolidation of recent gains may be becoming more likely.