We could all use some encouragement these days --even if it is mild.
I offer these:
-- Several of the major equity indices tested their support levels for the second day in a row Thursday and did so successfully.
-- The psychology data continue to send strong bullish signals.
-- The S&P 500 looks undervalued at current levels.
On the Charts
All the major equity indices closed higher Thursday with positive internals as trading volumes rose on both the NYSE and Nasdaq.
No resistance levels or trends were violated on the charts, leaving all but the S&P 500 in short-term neutral patterns in our opinion.
We would note that during the session, selling pressure came into play forcing the S&P 500 (see below), Nasdaq Composite, Dow Jones Transports, S&P MidCap 400 and Value Line Arithmetic Index to test their respective support levels for the second day in a row. In both cases, the tests were successful, offering some mild encouragement.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain negative and below their 50-day moving averages. Improvement in breadth has yet to be achieved.
The one-day McClellan Overbought/Oversold Oscillators (All Exchange: +25.15 NYSE:+17.51 Nasdaq:+32.37) remain in neutral territory in spite of Thursday's gains.
The Open Insider Buy/Sell Ratio at 141.0 still finds insiders aggressively buying their own stock while the detrended Rydex Ratio (contrary indicator) remains on a bright green light at -2.62 with the leveraged ETF Traders remaining highly leveraged short.
We reiterate the current insider/Rydex setup was seen four times in the last decade, each of which were coincident with important market bottoms.
The counterintuitive percentage of S&P issues trading above their 50-day moving averages is bullish at 5.2%.
The S&P 500 is trading at a P/E of 15.8x consensus forward 12-month earnings estimates from Bloomberg of $159.73 per share, versus the "rule of 20" fair value multiple of 19.4x, still suggesting the index remains undervalued.
The S&P's forward earnings yield is 6.32% and the 10-year Treasury yield is at 0.63%.
While our outlook may strike some as being unrealistic, we continue to use our discipline of the charts and data to check our emotions, resulting in maintaining our near term "neutral/positive" view for the equity markets.