The markets are having to deal with some headwinds, which will result in some consolidation of recent gains. Nevertheless, psychology data and valuation continue to flash what we believe to be very positive signals.
So where are we going from here? Let's take a look at the latest charts and data.
On the Charts
All the major equity indices closed lower Tuesday with negative internals on the NYSE and Nasdaq on increased trading volumes.
Most closed near their intraday lows but none violated support levels or trends, leaving all but the S&P 500 in neutral consolidation patterns.
The S&P 500 (see above) remains in a downtrend.
Tuesday's weakness did shift the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq to neutral from positive as all remain below their 50-day moving averages.
Given the Overbought/Oversold levels discussed below, we suspect the index charts may be setting up to test their respective support levels:
S&P 500: 2,449/2,633
Nasdaq Composite: 7,380/7,863
Nasdaq 100: 7,479/7,917
Dow Jones Transports: 7,324/8,132
S&P MidCap 400: 1,333/1,500
Russell 2000: 1,100/1,207
Value Line Arithmetic Index: 4,273/4,736
The data continue to send some bullish signals.
However, the one-day McClellan Overbought/Oversold Oscillators (All Exchange: +66.29 NYSE:+60.33 Nasdaq:+73.31) remain overbought and continue to suggest some potential retracement of the recent rally.
Yet the Open Insider Buy/Sell Ratio at 157.4 still finds insiders aggressively buying their own stock while the detrended Rydex Ratio (contrary indicator) remains on a bright green light at -2.67 as the leveraged ETF Traders remain highly leveraged short.
As we've noted recently, current insider/Rydex setup was seen four times in the last decade, each of which were coincident with important market bottoms.
The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is bullish at 4.2% (see below).
Percent of SPX stocks above their 50 DMA is 4.2% (bullish)
The S&P 500 is trading at a P/E of 16.4x consensus forward 12-month earnings estimates from Bloomberg of $157.91 per share, compared to the "rule of 20" fair value multiple of 19.3x, still suggesting the index remains undervalued.
The S&P's forward earnings yield is 6.1%, while the 10-year Treasury yield is at 0.7%.
While the OB/OS levels continue to suggest some near-term weakness as reasonably likely, we still find the psychology data and valuation compelling enough to maintain our near term "neutral/positive" outlook for the equity markets as a whole.