After a week of sector rotation and bonds selling off where is this market headed? Recently, the data and valuation have been counterbalancing the charts, but let's check the latest indicators.
On the Charts
The major equity indices closed mixed Friday without generating any notable technical events. The S&P 500 (see below), Nasdaq Composite and Nasdaq 100 declined as the rest advanced modestly.
The NYSE had positive up/down volume but negative breadth as the Nasdaq saw both metrics positive. All occurred on lighter trading volume.
As such, all of the index charts remain in short-term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq. High "volume at price" (VAP) levels remain supportive, in our view.
However, as noted recently, all of the stochastic readings are well into overbought territory, suggesting some near-term risk potential exists. Should they generate "bearish crossover signals," risk potential would likely increase.
Data Remains Mixed
All of the one-day McClellan Overbought/Oversold Oscillators remain overbought (All Exchange:+67.91 NYSE:+51.51 Nasdaq:+87.53). Like the stochastic readings, they imply an increase in retracement potential.
The detrended Rydex Ratio (contrary indicator) is neutral at +0.07 as is the percentage of S&P 500 stocks trading above their 50-day moving averages at 67.9.
Last Tuesday's AAII Bear/Bull Ratio (contrary indicators) remained bullish at 40.0/26.67. The Investor's Intelligence Bear/Bull Ratio (contrary indicator) shifted from bearish to neutral at 18.7/44.9.
The Open Insider Buy/Sell Ratio remains neutral at 36.5, but has been declining over the past week.
Valuation looks appealing and continues to compress. The 12-month forward consensus earnings estimate from Bloomberg for the S&P 500 dipped today to $171.45 per share, leaving the forward P/E multiple at 17.5x while the "rule of twenty" finds fair value at 18.1x. Earnings estimates have been declining over the past two weeks from $172.25 as the markets have moved higher.
The 10-year Treasury yield rose to 1.9%.
The earnings yield stands at 5.7%.
Friday's action did nothing to warrant a change in our near-term "neutral" outlook for the major equity indices as the weight of the evidence from the charts, data and valuation remains somewhat evenly balanced.