We are a bit more encouraged about the market's near-term potential as the major index charts saw a couple of positive technical events Thursday.
Still, charts remain a mix of bullish, neutral and bearish near-term trends and data remain mixed.
On the Charts
The major equity indices closed mixed Thursday with negative internals on the NYSE and Nasdaq as trading volumes dropped.
On the plus side, the S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 closed higher on the day with the Composite managing to close above resistance, turning its near-term trend to bullish from neutral.
The Nasdaq 100 (see below) closed above resistance as well and posted a new all-time closing high. The rest of the indices declined.
So, we now find the near-term trends bullish on the Nasdaq Composite and Nasdaq 100, neutral for the S&P, DJIA, MidCap 400 and Value Line Arithmetic Index and bearish for the Dow Jones Transports and Russell 2000.
Market breadth remains neutral for the All Exchange, NYSE and Nasdaq cumulative advance/decline lines. In our opinion, this continues to speak to the selectivity in the markets as previously discussed.
No stochastic signals were generated.
The McClellan 1-Day Overbought/Oversold oscillators are mostly neutral except for the NYSE that moved back into mildly oversold territory (All Exchange: -37.97 NYSE: -51.19 Nasdaq: -27.88). In our opinion, they do not present a threat at these levels.
However, the psychology data remains a concern. The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, remains bearish at 1.17 as they remain leveraged long.
This week's contrarian AAII bear/bull ratio (24.5/41.67) remained in mildly bearish territory while the Investors Intelligence Bear/Bull Ratio (contrary indicator) continued to suggest an excess of bullish expectations on the part of investment advisors at a bearish 15.3/61.2. The lack of fear generated by Monday's slide still implies too much bullish optimism remains present, in our opinion.
The Open Insider Buy/Sell Ratio did see an uptick to a neutral 32.4. Insiders have been a bit more active on the buy side but not what we would consider impressive.
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg is at $200.08 per share. As such, the S&P's forward P/E multiple is 21.8x with the "rule of 20" finding fair value at approximately 18.7x.
The S&P's forward earnings yield is 4.58%.
The 10-year Treasury yield closed at 1.27% and near 1.3% resistance. We view support to be 1.13%. We are monitoring the yield for a possible violation of said resistance.
The market route that occurred at the beginning of the week appears to be largely behind us. And while we are a bit more encouraged in our expectations, we are keeping our near-term macro-outlook for equities at "neutral" for now.