Several of the charts of the major equity indices saw their near-term uptrend lines violated Friday while also generating bearish stochastic crossover signals as cumulative market breadth weakened slightly.
The data, however, is still in neutral territory while the psychology data continues to suggest an excess of bullish sentiment as forward 12-month earnings estimates for the S&P 500 continue to rise.
On the Charts
All the major equity indices closed lower Friday with negative internals on the NYSE and Nasdaq.
The close found the S&P 500, Nasdaq Composite, Nasdaq 100, MidCap 400 and Russell 2000 below their near-term uptrend lines and on bearish stochastic crossover signals. However, no support levels were violated.
So, now only the Dow Jones Transports and Value Line Arithmetic Index are in uptrends with the rest neutral.
Market breadth slipped slightly, turning the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq neutral from their prior positive trends. Also, the Nasdaq A/D closed below its 50-day moving average.
The McClellan 1-Day Overbought/Oversold oscillators remain neutral (All Exchange: -10.25 NYSE: -15.12 Nasdaq: -6.44).
Sentiment indicators, however, remain cautionary.
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, is still in very bearish territory at 1.56.
Last week's Investors Intelligence Bear/Bull Ratio (contrary indicator) stayed bearish and unchanged at 16.8/63.4. The AAII, however, turned more bearish at 21.83/55.47. History suggests bullish expectations have become excessive that may cause an issue for the markets going forward.
The Open Insider Buy/Sell Ratio, however, remains in neutral territory lifting to 27.9 as insiders slightly increased their buying activity.
Valuation still appears extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg rising to $187.16 per share from our last reading of $184.20. This results in the S&P's forward P/E multiple dipping to 22.3x, while the "rule of 20" finds fair value at 18.4x. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
The SPX forward earnings yield stands at 4.5%.
The 10-year Treasury yield closed at 1.63% and at what we see as resistance. We view 1.55% as support.
The shift in the chart trends and cumulative breadth are not quite sufficient to alter our current near-term "neutral/positive" macro-outlook for equities as the rest of the data dashboard is little changed.