Short-term trends for the major equity indices are now evenly split. The data remains neutral across the board. However, several factors are raising some concerns, including that market advances have been coming on negative breadth.
Let's examine the charts, data and valuation.
On the Charts
The Nasdaq Composite and Nasdaq 100 (see below) closed higher Thursday with the rest declining in price with negative breadth on the NYSE and Nasdaq.
The Nasdaq 100 did manage to make a new closing high although it was achieved with negative market breadth that, in our opinion, dims the technical achievement.
Both the DJIA and Dow Transports closed below their short-term uptrend lines turning their trends to neutral from positive. They join the Russell 2000 and Value Line Arithmetic Index in that status.
The rest of the indices are positive. The cumulative advance decline lines for the All Exchange, NYSE and Nasdaq remain positive but are seeing a lessening of their upward slopes.
The data is neutral, including all of the one-day McClellan Overbought/Oversold Oscillators (All Exchange:-30.47 NYSE:-39.5 NASDAQ:-21.89).
The Open Insider Buy/Sell Ratio remains neutral at 42.1 although the pace of insider buying has moderated.
The percentage of S&P 500 stocks trading above their 50-day moving averages is neutral with a 69.7% reading.
Crowd sentiment has shifted a bit. The detrended Rydex Ratio (0.69) and new AAII Bear/Bull Ratio (23.0/37.33) remain neutral. As recently noted, the Investors Intelligence Bear/Bull Ratio (contrary indicator) shows investment advisors becoming slightly overly bullish at 19.2/54.8 now that some indices are posting new highs.
The S&P 500 is trading at a forward P/E multiple of 17.0x consensus 12-month earnings of $171.82 per share, versus the "rule of twenty" fair value multiple of 17.5x. As such, the S&P is approaching fair value by this metric.
The earnings yield stands at 5.87%.
We are maintaining our near-term market outlook at "neutral/positive." However, weakening breadth as we approach fair value and advisors getting a bit excessive in their optimism are raising some concerns.