As the markets focus on every piece of economic data being released, including Tuesday's JOLTS report and Wednesday's ADP numbers, the charts and breadth dissipated some of the clouds, while valuation is still bothersome.
All the major equity indexes closed higher Tuesday with positive NYSE and Nasdaq internals as trading volumes heightened from the prior session. All closed near their session highs with several technical improvements including violations of resistance and downtrend lines, leaving most in near-term neutral trends. Cumulative market breadth saw some notable improvement as well.
Meanwhile, the data remains largely neutral. However, forward valuation for the S&P 500 remains very extended (see below).
In our opinion, the current evidence suggests that more focus should be on the action of individual names, in either direction.
Charts and Breadth Improve Further
Chart Source: Bloomberg
On the charts, all the major equity indexes closed higher Tuesday with positive internals on heavier volume.
All closed near their session highs with all but the Midcap 400 and Russell 2000 (see above) closing above resistance.
Also, the S&P 500, Russell 2000 and Value Line Arithmetic Index closed above their near-term downtrend lines shifting their trends from bearish to neutral.
Thus, all are neutral except the DJIA, Dow Jones Transports and Midcap 400, which remain bearish.
Cumulative market breadth saw notable improvement as well with the advance/decline lines for the All Exchange, NYSE and Nasdaq positive and the NYSE above its 50-day moving average.
A bullish stochastic crossover was registered on the Dow Transports.
The Data Are Mostly Neutral
The McClellan Overbought/Oversold Oscillators are still neutral despite the day's strength (All Exchange: +28.84 NYSE: +37.29 Nasdaq: +24.39).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 44%, staying neutral.
The Open Insider Buy/Sell Ratio is 54.2%, staying neutral as well.
The detrended Rydex Ratio (contrarian indicator) remains neutral, dipping to 0.21%.
Leveraged ETF sentiment (contrarian indicator) rose to 13.3% and is also neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 0.74, also staying neutral.
However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is still on a bearish signal at 18.6/44.3. We continue to view them as representing potential supply.
Valuation remains a primary concern and extended. The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 rose to $232.01 per share. However, the S&P's forward P/E multiple at 19.4x remains well above the "rule of 20" ballpark fair value at 15.9x, leaving little room for error.
The S&P's forward earnings dipped to 5.16%.
The 10-Year Treasury yield closed lower at 4.12%. Support is 4.09% with resistance at 4.3%.
Valuation continues to be a concern while the charts and breadth have brightened. Yet, any economic data released has resulted in more market impact in either direction. We are still not convinced the correction is finished, however. We would now focus more on the action in individual names for buy/sell signals.