All the major equity indexes remain near-term bullish.
Meanwhile, the data are generally neutral except for investor sentiment (contrarian indicator) that still finds the crowd mostly bearish in their outlook. However, valuation remains a bit stretched.
We continue to believe that the overall outlook for equities remains positive with the caveat that price should not be chased. We suggest buying weakness near support levels is the more prudent approach.
All Chart Trends Remain Near-Term Bullish
Chart Source: Worden
On the charts, all the major equity indexes closed higher Friday with positive NYSE internals as the Nasdaq saw positive breadth but negative up/down volume.
The S&P 500 (see above) closed near its high of the day as the rest of the indexes closed near their midpoints.
All remain in near-term uptrends and above their 50-day moving averages.
Cumulative market breath remains neutral with the advance /declines for the All Exchange, NYSE and Nasdaq with only the Nasdaq below its 50 DMA.
The stochastic readings saw a bearish crossover signal registered at the close for the S&P 500.
In our view, the technical picture remains constructive.
Data Largely Neutral
The McClellan Overbought/Oversold Oscillators remain neutral across the board (All Exchange: +22.05 NYSE: +36.2 Nasdaq: +12.98).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) moved into bearish territory, rising to 82%.
The Open Insider Buy/Sell Ratio saw an uptick to 36.9, staying neutral.
The detrended Rydex Ratio, (contrarian indicator) rose to -1.07 versus its prior -1.70 reading. While it remains on a bullish signal, the leveraged ETF traders have covered their previous extremely leveraged short exposure significantly, thus suggesting a sizable amount of that fuel has now been spent. Yet it still represents some potential demand exists.
The detrended Rydex Ratio is -1.07 (bullish)
Last week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 1.53 but remained on a very bullish signal with the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 36.6/35.2 as bears continued to outweigh bulls, staying bullish.
Valuation Remains Stretched
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 is unchanged at $225.16 per share. As such, its forward P/E multiple is now 17.6x and at a premium to the "rule of 20" ballpark fair value of 16.2x.
The S&P's forward earnings yield is 5.68%.
The 10-Year Treasury yield closed higher at 3.82%. We see support as 3.56% with resistance at 3.95%.
Our Near-Term Market Outlook
Our outlook remains generally constructive given the charts and generally neutral data implications. However, the valuation gap, in our view, suggests buying weakness near support may continue to be the better approach versus chasing price.