Most of the major equity indices remain in near-term uptrends. Indeed, no sell signals have been generated at this point.
However, we continue to get countering data regarding investor psychology, insider selling and valuation that leave the scales fairly evenly balanced
On the Charts
All the equity indices closed higher Tuesday with positive internals and near their intraday highs.
Positive technical events occurred on the MidCap 400 (see above) and Value Line Arithmetic Index as both closed back above their near-term uptrend lines to new all-time closing highs. The Nasdaq Composite and Russell 2000 made new all-time closing highs as well.
So, only the S&P 500, DJIA and Dow Jones Transports are neutral with the rest positive.
Breadth improved as well with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turning back to positive from neutral as they remain above their 50-day moving averages.
We have yet to see what we would consider to be "sell signals" on the charts, suggesting said trends should still be respected.
The data are still counterbalancing the positive chart trends.
The one-day McClellan Overbought/Oversold Oscillators remain neutral on the All Exchange, NYSE and Nasdaq (All Exchange: +19.54 NYSE: +14.29 Nasdaq: +224.21).
It is the psychology data and valuation that continue to suggest some caution is warranted.
The Open Insider Buy/Sell Ratio closed at 25.0 and is now mildly bearish as insider selling transactions have dominated through most of the recent rally.
Meanwhile, the leveraged ETF traders, measured by the detrended Rydex Ratio (contrarian indicator), remain leveraged long at a bearish 1.42.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) saw little change at 16.8/64.4 and remains bearish as advisors are all on the bullish side of the boat and at historically high levels. However, the AAII Bear/Bull Ratio saw a lift in bulls at 25.68/48.14 and remains near peak levels seen over the past decade.
S&P 500 Valuation
The valuation gap still appears extended with the S&P 500 trading at a P/E multiple of 23.0x consensus forward 12-month earnings estimates from Bloomberg of $160.31 per share, while the "rule of 20" finds fair value at 19.1x.
The S&P's forward earnings yield is 4.34% with the 10-year Treasury yield at 0.92%.
The chart trends are positive and should be respected. However, insider activity, historically high bullish sentiment and valuation suggest risk is present. Thus, we are staying "neutral" in our near-term outlook.