Stocks are strong Thursday morning resulting from positive employment and retail sales releases. While the S&P 500 closed below its short-term uptrend line Wednesday, moving to a neutral near-term trend, most of the major equity index charts remain near-term bullish while market breadth is mixed.
Chart trends should continue to be respected, even as sentiment data has become more cautionary.
On the Charts
The S&P 500, Nasdaq Composite and Nasdaq 100 closed lower Wednesday as the rest of the indices advanced. All closed at or near their intraday lows.
The only technical event of importance was the S&P closing below its near-term uptrend line (see above), shifting its trend to neural as is the Russell 2000.
The rest of the indices remain in near-term uptrends.
Market breadth remains mixed with the cumulative advance/decline line turning neutral on the All Exchange with the NYSE's staying positive and the Nasdaq negative.
Stochastic levels continue to stay in overbought territory but have not yet generated bearish crossover signals.
We continue to believe the chart trends should be respected unless proven otherwise.
The data remains generally neutral while the sentiment indicators remain cautionary.
The McClellan one-day Overbought/Oversold Oscillators all remain in neutral territory (All Exchange: +4.87 NYSE: +25.04 Nasdaq: -30.32).
Sentiment data finds the Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders in bearish territory at 1.35 as the traders remain leveraged long.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) was unchanged at a bearish 17.5/54.4 with the AAII a bearish 21.4/52.2 as bullish sentiment increased.
Of note, the Open Insider Buy/Sell Ratio is bearish at a 10-year low reading as insiders have recently stepped up their selling activity. However, our experience is this data point is much more effective in marking market lows versus tops.
Valuation still appears extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg lifting to $182.07 per share. This leaves the S&P's forward P/E multiple at 22.7x while the "rule of 20" finds fair value at 18.4x. We reiterate the valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
The S&P's forward earnings yield stands at 4.4%.
The 10-year Treasury yield rose to 1.64% and closed below its short-term uptrend line. Resistance is 1.75% with support at 1.55%.
For reasons stated above, we are maintaining our near-term "neutral/positive" macro-outlook for equities. In addition, several companies have recently been raising their quarterly revenue estimates.