Several technical improvements have appeared on the charts, with the S&P 500 actually making a new closing high. However, the data dashboard is now flashing some cautionary signals.
Let's look at the charts and indicators to see where the markets may be headed.
On the Charts
All of the major equity indices indexes closed higher Thursday with positive internals on higher trading volumes.
The S&P 500 (see above), DJIA, Nasdaq 100, Dow Jones Transports, S&P MidCap 400 and Russell 2000 all closed above their respective resistance levels with the S&P actually managing to post a new closing high.
The action in the Transports turned its short-term trend to positive from neutral while the Value Line Arithmetic Index closed above its 50-day moving average, leaving only the Transports unable to achieve that goal at this point.
As such, all of the indices are in short-term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
We would note the Nasdaq Composite is at a high "volume at price" (VAP) level that may require further work to overcome as are the MidCap and Value Line.
Some of the data is suggesting a pause within the recent rally may be forthcoming.
The one-day McClellan Overbought/Oversold Oscillators are now overbought (All Exchange:+73.03 NYSE:+81.28 Nasdaq:+66.0) implying a lowering of fuel to propel higher prices over the near term.
On the other side, the Open Insider Buy/Sell Ratio (85.4), continued to see an increase in insider buying within the recent rally.
The percentage of S&P 500 stocks above their 50-day moving averages (67.5) and detrended Rydex Ratio (contrary indicator) at -0.34 are also neutral.
The AAII Bear/Bull Ratio (contrary indicator) finds bearish sentiment persisting at 38.67/24.0. We view this lack of enthusiasm on the part of the crowd as a positive.
The S&P 500 is trading at a forward P/E multiple of 17.3x consensus 12-month earnings estimate from Bloomberg of $170.53 per share, versus the "rule of twenty" fair value multiple of 18.0x, suggesting the S&P is slightly undervalued.
The shift in fair valuation has largely been due to the notable drop in the 10-year Treasury yield to 2.0%.
The earnings yield stands at 5.77%.
We are maintaining our near-term "neutral/positive" outlook for the major equity indices at this time with the caveat that some pause/retracement of progress is now more likely.