As more resistance levels are broken, the S&P 500 is closing in on fair value.
Forward earnings estimates for the S&P 500 have been declining, suggesting it is becoming more appropriately valued versus its prior undervalued status (see below).
On the Charts
All of the major equity indices closed higher Friday with positive internals.
The only index unable to close above its near-term resistance level was the Nasdaq 100 (see below) as the rest achieved that goal. Therefore, all of the index charts remain in near-term uptrends as do the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
Stochastic levels are overbought but have not flashed bearish crossover signals at this point.
The data remains mostly neutral although all of the McClellan Overbought/Oversold Oscillators are now overbought (All Exchange:+73.17/+98.28 NYSE:+78.34/+122.96 NASDAQ:+71.52/+79.31).
While remaining in neutral territory, the Open Insider Buy/Sell Ratio (26.9) and percentage of S&P 500 stocks trading above their 50-day moving averages (89.7%) are close to turning negative. Yet we would note they are not great "timing" instruments for short-term market shifts.
Valuation may be the most important metric at this point.
The S&P 500 is trading at a forward P/E of 16.6x reduced consensus 12-month earnings estimates via Bloomberg of $167.76 per shares (from $171.00 a few weeks ago), versus the "rule of 20" implied fair value multiple of 17.3x.
While still undervalued, we believe it worth noting as the spread between actual and fair value has been shrinking. Should the S&P 500 continue to advance as estimates decline, it may prove problematic.
The "earnings yield" stands at 6.04%.
While there are a few issues that have us looking over our shoulders a bit, the state of the charts and data continue to suggest we maintain our near-term "positive" outlook for the major equity indices.