The exchanges closed higher on increasing volumes. But the indices are coming up against key resistance and valuation is now encroaching on fair value.
On the Charts
All of the indices closed higher on Monday with positive internals on higher trading volumes. All the uptrends are intact, although the Russell 2000 Index is still neutral.
The Nasdaq Composite Index, Dow Jones Industrials, Nasdaq 100 Index and S&P 500 are close to important resistance levels -- and if they are violated, it would likely brighten the technical picture.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive and above their 50-day moving averages.
The data remains largely neutral, including all of the 1 day McClellan Overbought/Oversold Oscillators (All Exchange:-0.03; NYSE:+5.22; Nasdaq:-2.33). The fact that they are not overbought given the recent rally is a positive, in our opinion.
The Open Insider Buy/Sell Ratio remains neutral at 64.9, and the percentage of S&P 500 stocks trading above their 50-day moving averages is still neutral, at a 75.3% reading. The crowd is also neutral, with sentiment readings at 0.71 on the detrended Rydex Ratio and a 25.0/36.0 AAII Bear/Bull Ratio. As a reminder, excessive enthusiasm on these two indicators tends to be prescient of a market contraction. That has yet to occur.
The S&P 500 is trading at forward P/E multiple of 17.0x consensus 12-month earnings estimates of $171.71 per share, versus the "rule of twenty" fair value multiple of 17.4x.
The narrowing of this spread may have the potential to slow the pace of progress. The upcoming earnings season may be a catalyst in either direction.
Our near-term market outlook remains "neutral/positive," as there are no major changes in the data and on the charts -- but keep in mind that valuation is not nearly as cheap as it was a few months ago.