Despite the data starting to cast some clouds, we remain near-term "neutral/positive" in our macro-outlook for equities as what appears to be a redeployment of funds from the large-cap indices into lesser-known names continues in a broadening rally.
On the Charts
Only the DJIA closed lower Tuesday as the rest posted gains with positive internals on the NYSE and Nasdaq as the Nasdaq's volume rose substantially from the prior session.
Most closed near their intra-day highs as the Nasdaq Composite and Russell 2000 (see below) closed above resistance with the broader unweighted Value Line Arithmetic Index making another new closing high.
As such, the Nasdaq Composite and 100, Russell and Value Line index remain in near-term uptrends with the rest neutral.
Market breadth remains healthy with the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq positive and above their 50-day moving averages.
The DJIA gave a bearish stochastic crossover signal while the Dow Transportation Index is nearing an oversold condition in that regard.
Digging Into the Data
The McClellan 1-Day Overbought/Oversold Oscillators are now overbought across the board (All Exchange: +63.02 NYSE: +50.16 Nasdaq: +73.9).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, was unchanged at 1.17 and remains in bearish territory.
This week's contrarian AAII bear/bull ratio (24.18/39.18) stayed neutral but saw a lift in bullish sentiment as did the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.25/53.6, which remains on a bearish signal.
The Open Insider Buy/Sell Ratio dropped further into bearish territory at 21.7 as insider buying remains dormant.
View on Valuation
Valuation continues to appear extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg rising to $191.53 per share.
The S&P's forward P/E multiple is 22.1x with the "rule of 20" finding fair value at 18.5x. 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 is 4.53%.
The 10-year Treasury yield closed at 1.53% and below what we viewed as support at 1.55%. We now see support at 1.5% with resistance at 1.61%. We continue to believe the moves in the 10-year yield may well have the greatest influence over the near-term action on the equity indices.
We remain near-term "neutral/positive" in our macro-outlook for equities.