As the market digests the latest inflation data in the form of the April CPI reading, let's take a close look at the latest charts and data.
Tuesday's market action left the charts of all the major equity indexes evenly split between neutral a bearish near-term trends.
Meanwhile, the data, while neutral across the board, continues to show increased buying activity, which does offer some encouragement.
In our view, the overall landscape suggests some further sideways action for the markets. We believe some selective buying may be appropriate.
Soft Session Leaves Chart Trends Unchanged
Chart Source: Worden
On the charts, all the major equity indexes posted losses Tuesday with negative market internals.
However, the weakness did not result in any technical events of note being generated, which left the near-term trends for the S&P 500 (see above), DJIA, Nasdaq Composite and Nasdaq 100 neutral and the rest bearish.
Cumulative market breadth was unchanged as well with the NYSE A/D neutral and the All Exchange and Nasdaq negative.
The stochastic levels for the Nasdaq Composite and Nasdaq 100 are now overbought but have not generated bearish crossover signals at this point.
Data Entirely Neutral as Insiders Keep Buying
The data dashboard is completely neutral and suggests some further sideways action, in our opinion.
The 1-day McClellan Overbought/Oversold Oscillators are all neutral (All Exchange: -10.82 NYSE: -32.57 Nasdaq: +1.83).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral, dipping to 49%.
The Open Insider Buy/Sell Ratio continues to catch our attention as it rose further to 103.3. It remains neutral, although insiders have been more aggressive on the buy side over the past few sessions. We still find their action encouraging.
The Open Insider buy/sell ratio is 103.3% (neutral)
The detrended Rydex Ratio (contrarian indicator) rose to +0.09, also staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) was .57, turning very bullish from bullish as crowd fear rose.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 23.4/49.8%.
Valuation
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 slipped to $223.85 per share. As such, the valuation gap is a bit disconcerting with the S&P's forward P/E multiple of 18.4x versus the "rule of 20" ballpark fair value is 16.5x. Yet, it still implies some degree of lessening of market risk that had been a major concern for the past few weeks.
The S&P's forward earnings yield is 5.43%.
The 10-Year Treasury yield closed flat at 3.52%. It is in a short-term neutral trend. We see support at 3.42% and resistance at 3.55%.
Bottom Line
The weight of the overall evidence suggests some further sideways action is the likely near-term probability for equities. While valuation should not be ignored, insider buying offers some encouragement.
