The charts of the major equity indexes saw multiple technical improvements we were looking for Friday, as all but two shifted to neutral from bearish trends.
Also, we believe the data continue to offer some positive projections with the 1-day McClellan OB/OS Oscillators not overbought and the contrarian detrended Rydex Ratio on a bullish signal (see below). Our only issue of concern is valuation.
Let's dig into the charts and data now.
On the Charts
All the major equity indexes closed higher Friday with positive internals on the NYSE and Nasdaq. Strength persisted into the close with all closing near their highs of the day.
We had been waiting for the charts to confirm the data suggestion of a rally which has now occurred.
All the charts except the Dow Jones Transports closed above their resistance levels while the S&P 500, Nasdaq Composite, Nasdaq 100, MidCap 400, Russell 2000 (see above) and Value Line Arithmetic Index closed above their downtrend lines and are now in neutral patterns versus their prior bearish slopes.
Additionally, the S&P 500, Nasdaq Composite, Nasdaq 100, MidCap 400, Russell 2000 and Value Line Arithmetic Index closed above their 50-day moving averages.
Market breadth was positive, leaving the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq neutral with the NYSE above its 50 DMA.
The stochastic levels that gave bullish signals last week are neutral across the board.
Data Still Offer Some Encouragement
The McClellan Overbought/Oversold Oscillators are only neutral despite the recent sizable gains (All Exchange: -6.97 NYSE: -9.53 Nasdaq: -4.69).
The percentage of S&P 500 issues trading above their 50-day moving average (contrarian indicator) rose to 64% and remains neutral.
The Open Insider Buy/Sell Ratio slipped to 53.8%, staying neutral.
The detrended Rydex Ratio (contrarian indicator) (see below) intensified its green light at -1.69 as the typically wrong leveraged ETF traders increased their deeply leveraged short exposure.
The detrended Rydex Ratio is -1.69 (bullish)
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.57 and is in bullish territory.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 30.1/38.4, neutral with an increase in bears and drop in bulls.
Valuation at a Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has dropped to $232.79 per share. As such, its forward P/E multiple is 17.5x and at a premium to the "rule of 20" ballpark fair value at 16.7x.
The S&P's forward earnings yield is 5.72%.
The 10-Year Treasury yield closed higher at 3.32%. We view support at 3.08% with resistance at 3.48%.
Our Market Outlook
We believe some further market strength is in the offering now that the charts have confirmed the data projections, while the OB/OS are not threatening and the contrarian Rydex Ratio says the leveraged ETF traders are on the wrong side of the fence.