Are things finally turning up?
Indexes bounced Friday on string internals as speculation that the Fed may be lowering its pace of interest-rate increases entered the picture.
While no violations of resistance occurred on the charts, all but three remaining in near-term bullish trends. Market breadth remains strong as well.
However, market oscillators have returned to overbought conditions, possibly suggesting some pause, while the rest of the data is generally neutral.
We remain of the opinion that the recent improvements in the equity market structure suggest buying weakness near support as plenty of non-believers remain on the sidelines.
Indexes Bounce With Strong Internals
Chart Source: Worden
On the charts, all the major equity indexes closed higher Friday with very positive NYSE and Nasdaq internals. In fact, up volume swamped down volume by a significant degree on the NYSE (3.4B/602M) and Nasdaq (5.29B/848M).
All the indexes closed near their session highs with the S&P 500, Nasdaq Composite (see above) and Nasdaq 100 closing back above their 50-day moving averages, leaving only the DJIA below that benchmark.
No violations of resistance were registered. Yet that left the bulk in near-term bullish trends with just the DJIA, Nasdaq Composite and Nasdaq 100 neutral.
Cumulative market breadth remains strong on the All Exchange, NYSE and Nasdaq and above their 50-day moving averages.
No new stochastic signals were generated.
McClellan 1-Day OB/OS Oscillators Return to Overbought
Regarding the data dashboard, the rally pushed the McClellan Overbought/Oversold Oscillators back into overbought territory and implying the potential for some pause of strength (All Exchange: +74.43 NYSE: +84.76 Nasdaq: +67.28).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 61% and is on a neutral signal.
The Open Insider Buy/Sell Ratio remains neutral dipping to 25.9 but just shy of turning bearish.
The detrended Rydex Ratio (contrarian indicator) rose to -0.61 and is also neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 1.82 as bearish sentiment declined but remains on a very bullish signal.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was neutral at 32.9/41.4.
Market Valuation and Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 continued to slip to $225.50 per share. As such, its forward P/E multiple is 17.6x and a slightly higher premium to the "rule of 20" ballpark fair value of 16.5x.
The S&P's forward earnings yield is 5.68%.
The 10-Year Treasury yield closed higher at 3.48%. It is in a short-term negative trend with support at 3.4% and resistance at 3.67%.
Our Market Outlook
Friday's gains were strong with very healthy internals as demand for equities overtook supply as Fed fears seemed to relax a bit. At this stage, we remain of the opinion that the charts and data are still suggesting weakness should be bought when near support levels.
