The support levels for all the major equity index charts continue to hold as the equity market consolidates significant gains from the October lows.
What's more, we believe that weakness should be bought near support until evidence appears to suggest otherwise.
Consolidation Day Leaves Supports Intact
On the charts, all the major equity indexes closed lower Friday with negative NYSE and Nasdaq internals.
All closed near their lows of the day yet managed to close above their respective support levels (see below) as has been the case thus far within what we see as a normal period of consolidation of the sizable gains for the market's October lows.
Also, all the charts are still in neutral near-term trends.
However, market cumulative breadth turned negative from neutral for the All Exchange, NYSE and Nasdaq. We would note, however, that cumulative breadth tends to be a more coincident/lagging indicator.
Stochastic levels are all oversold with some down in the single digits and the reverse of their status at the market highs.
Index Support/Resistance Levels
S&P 500: 3,936/4,118
Nasdaq Composite: 10,784/11,481
Nasdaq 100: 11,481/12,152
Dow Jones Transports: 13,745/14,271
MidCap 400: 2,459/2,555
Russell 2000: 1,780/1,840
Value Line Arithmetic Index: 8,638/9,068
Data Remain Mostly Neutral With All Stochastic Levels Oversold
On the data front, the bulk remains neutral. The McClellan Overbought/Oversold Oscillators remain neutral except for the NYSE that is mildly oversold (All Exchange: -38.75 NYSE: -50.57 Nasdaq: -30.86).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) moved marginally lower at 78% and is technically neutral.
The Open Insider Buy/Sell Ratio rose to 50% as insiders did a little buying, also staying neutral.
The detrended Rydex Ratio (contrarian indicator) dropped to -0.95 and is mildly bullish.
Last week's AAII Bear/Bull Ratio (contrarian indicator) was lower at 1.39 but remained bullish.
Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a rise in bears and drop in bulls at 31.5/38.4, remaining neutral with bulls outnumbering bears.
Forward Valuation at a Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has dropped further to $224.96 per share. As such, the S&P's forward P/E multiple stands at 17.5x and remains at a premium to the "rule of 20" ballpark fair value of 16.4x.
The S&P's forward earnings yield rose to 5.72%.
The 10-Year Treasury yield closed higher at 3.57%. It is in a downtrend with support at 3.29% with resistance at 3.69% by our work.
Our Near-Term Outlook
Taking all the charts, valuation and data into consideration along with the fact that the markets have seen a significant rise from the October lows, we suspect we are now in a period of sideways consolidation. We remain buyers of weakness near support until evidence appears to suggest otherwise.