More equity indices have produced closes above resistance after Tuesday's run-up before the midterm election results. This has turned their short-term trends positive.
Meanwhile, data remain mixed. However, one contrarian indicator is giving an important historical signal.
Let's take a deep dive into the charts and stats.
Checking the Charts
All of the major equity indices closed higher Tuesday with most closing at or near their intraday highs with positive internals.
The charts saw the S&P 500 (see above), DJIA, Dow Transports and S&P MidCap 400 close above their respective near-term resistance levels.
We now find the S&P, DJIA, Dow Transports, MidCap and Value Line Arithmetic Index in short-term uptrends. The rest remain neutral.
Overall market breadth improved a bit further with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ edging higher but remaining below their 50-day moving averages.
Data Is Mixed
Recent gains have pushed all of the 1-day McClellan Overbought/Oversold Oscillators into overbought territory with the 21-day levels neutral (All Exchange:+68.57/-39.09 NYSE:+73.45/-28.05 NASDAQ:+66.59/-48.04).
The percentage of S&P 500 stocks trading above their 50-day moving averages is a neutral 35.1 as is the Open Insider Buy/Sell Ratio at 112.8. However, the detrended Rydex Ratio (contrary indicator; see below) at -2.58 shows the leveraged ETF traders extremely leveraged short at levels seen only four times since 2009. In each case, those levels were coincident with market bottoms.
The detrended Rydex Ratio is -2.58 (very bullish)
Seasonality remains encouraging. The November-to-April period coming out of a midterm election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative.
Valuation, assuming current estimates hold, remains below implied fair value. The S&P 500 is trading at a forward P/E multiple of 16.0x consensus 12-month earnings estimates via Bloomberg of $171.77 per share, versus the "rule of 20" implied fair value of 16.8x.
The "earnings yield" stands at 6.23%.
The current condition of the charts and data suggest we maintain our near-term "neutral/positive" outlook for the major equity indices.