While all of the charts of the major equity indices remain in near-term uptrends, more of the data is turning cautionary. Meanwhile, the valuation gap has become more compressed. In short, we believe that more attractive buying opportunities than this may be in the offering.
On the Charts
The bulk of the equity indices closed higher Tuesday with the one exception of the S&P 500 (see below).
The NYSE saw mixed internals with positive up/down volume but negative breadth. Overall trading volumes were above those of the prior session on the NYSE and Nasdaq.
New closing highs were achieved on the DJIA, Nasdaq Composite and Nasdaq 100, although said gains were fractional.
All of the indices are in near-term uptrends.
The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq are positive as well.
Yet there still are some concerns. All of the indices are somewhat extended above their 50-day moving averages, suggesting some degree of vulnerability while the VIX, at 13.06, is at levels seen three times over the past 12 months, all of which resulted in volatility and price corrections.
Also, all of the stochastic levels remain overbought although they can stay in that condition for extended periods.
The data is turning more mixed in its message.
While the one-day McClellan Overbought/Oversold Oscillators are neutral on the All Exchange and NYSE, they are mildly overbought on the Nasdaq (All Exchange:+34.98 NYSE:+318.41 Nasdaq:+50.68) as well as all of the 21-day readings.
The detrended Rydex Ratio (contrary indicator) is mildly bearish +0.60 while Tuesday's AAII Bear/Bull Ratio (contrary indicators) turned neutral at 29.0/34.0.
Also, the Investor's Intelligence Bear/Bull Ratio (contrary indicator) is notably bearish at 16.8/55.1, suggesting an excess of bullish sentiment/complacency on the part of investment advisors.
The percentage of S&P 500 stocks trading above their 50-day moving averages is a neutral 69.1% as is insider buying dipping to a 36.4 Open Insider Buy/Sell Ratio.
Valuation is closing in on fair value with forward 12-month earnings estimates for the S&P 500 at $172.40 per share via Bloomberg, leaving the forward P/E multiple at 17.8x while the "rule of twenty" finds fair value at 18.1x.
The 10-year Treasury yield stands at 1.87%.
The earnings yield is 5.61%.
While we would normally be more constructive in our outlook, the VIX, stochastic levels, valuation and psychology data suggest some degree of caution is appropriate, thus causing us to maintain our near-term "neutral" outlook.