While recent market activity has offered some encouragement, we may see some pause in the recent progress, which would not be unusual.
We continue to believe weakness should be bought when support levels are tested.
Let's take a look at the latest index charts and market data.
On the Charts
The major equity indexes closed mostly lower Friday except for the Nasdaq Composite and Nasdaq 100 (see above) posting gains. No violations of trend, resistance or support occurred, leaving all in near-term neutral trends.
We would remind everyone that the Nasdaq Composite and Nasdaq 100 did manage to close above their intermediate-term downtrends last week that brightens the picture, in our view.
Cumulative market breadth remains neutral for the All Exchange, NYSE and Nasdaq.
Stochastic levels are generally neutral although the Nasdaq Composite and Nasdaq 100 are now overbought in that regard but have yet to generate bearish crossover signals.
Digging Into the Data
The McClellan Overbought/Oversold Oscillators are now slightly overbought on the All Exchange with the Nasdaq overbought and the NYSE neutral (All Exchange: +50.03 NYSE: +39.44 Nasdaq: +57.8).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) was unchanged at 28%, staying neutral.
The Open Insider Buy/Sell Ratio dipped to 62.1, also staying neutral.
However, the detrended Rydex Ratio (contrarian indicator) at -2.33 continues to be on a very bullish signal as the typically wrong leveraged ETF traders remain heavily leveraged short.
Last week's AAII Bear/Bull Ratio (contrarian indicator) saw the crowd staying very fearful, at 2.72 and very bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a rise in bulls and drop in bears but is also very bullish at 40.0/32.9. Three times in the past decade, such readings have marked market lows, most followed by notable rallies.
S&P 500 Valuation & Treasury Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has edged up to $239.69 per share. As such, the S&P's forward P/E multiple is 16.3x and at a slight discount to the "rule of 20" ballpark fair value at 16.9x.
The S&P's forward earnings yield is 6.15%.
The 10-Year Treasury yield closed higher at 3.1% and above resistance. We view support as 2.8% and new resistance at 3.15%.
Our Near-Term Market Outlook
The potential for some pause exists according to the OB/OS oscillators and stochastic levels. However, recent improvements on the charts combined with highly bearish sentiment and more reasonable valuation suggests we should be buyers on tests of support.