As we wrap up another week of trading, let's take a close look at the charts of the major equity indexes, key market data and indicators.
What direction is the market headed and what's the right strategy to play it?
Let's get started.
Mixed Session Leaves Chart Trends Unchanged
Chart Source: Worden
On the charts of the major equity indexes, only the Nasdaq Composite and Nasdaq 100 (see above) posted gains Thursday, almost entirely due to two of the mega-cap stocks moving higher. The rest closed lower on the day with negative NYSE and Nasdaq internals.
However, the end result was no shift on the current near-term trends that find the Nasdaq Composite positive with the S&P 500, DJIA, Nasdaq 100 and Russell 2000 neutral and the rest bearish.
Cumulative market breadth saw some deterioration as the NYSE advance/decline line joined the All Exchange and Nasdaq in negative trends.
The stochastic readings are still overbought on the Nasdaq Composite and Nasdaq 100, but no bearish crossovers have been registered as the rest are still neutral.
Data Remain Entirely Neutral, Suggesting More Sideways Action
The data dashboard is still completely neutral and suggests some further sideways action, in our opinion.
The 1-day McClellan Overbought/Oversold Oscillators are all neutral (All Exchange: -18.32 NYSE: -42.94 Nasdaq: -1.65).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral, dipping to 46%.
The Open Insider Buy/Sell Ratio dipped to 90.3. It remains neutral but insiders have been consistently more aggressive on the buy side over the past few sessions until Thursday. We continue to see their recent buying as encouraging.
The detrended Rydex Ratio (contrarian indicator) dropped to -0.05, also staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) was 1.57, turning very bullish from bullish as crowd fear rose. That also offers some optimism.
The AAII Bear/Bull Ratio (using 3WMA) is 1.57 (very bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 23.4/49.8.
Valuation Concerns Lessen
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 rose to $223.76 per share. As such, the valuation gap is still a bit disconcerting with the S&P 500's forward P/E multiple of 18.5x versus the "rule of 20" ballpark fair value is 16.6x. However, it still implies some lessening of market risk that had been a major concern for the past few weeks when the gap was much wider.
The S&P's forward earnings yield is 5.42%.
The 10-Year Treasury yield closed lower at 3.4% and below support. It is in a short-term neutral trend. We see new support at 3.35% and resistance at 3.46%, by our analysis.
The charts and data are mixed enough to not offer any near-term high probabilities regarding direction. However, the recent lift in S&P 500 EPS estimates with insider buying and a very fearful "crowd" offer some slight reason for optimism. We remain very selective buyers due to negative market breadth.