Are we there yet?
Two more of the equity indexes closed above their near-term downtrend lines Thursday and are now near-term neutral. More stochastic bullish crossovers were registered as well.
Meanwhile, investor sentiment (contrarian indicator) still finds the crowd quite fearful and near record levels, offering a potential boost to the markets. The S&P 500 trading at a discount to ballpark fair value offers even more encouragement.
But there's one more thing that would make us more confident about further progress...
What's Happening On the Charts
All the major equity indexes closed lower Thursday with positive Nasdaq internals while the NYSE had positive breadth but negative up/down volume.
All closed near their highs of the session as buying remained strong into the close.
The Dow Jones Transports and Russell 2000 (see above) managed to close above their near-term downtrend lines, turning said trends to neutral from bearish as are the rest of the indexes.
Cumulative breadth remains neutral for the All Exchange, NYSE and Nasdaq although showing some improvement.
The S&P 500, DJIA and Russell 2000 registered bullish stochastic crossovers as did the Nasdaq Composite and Nasdaq 100 in the previous session. They add a little positive weight to the scale, in our opinion.
Regarding the Data...
The McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: +19.95 NYSE: +0.07 Nasdaq: +36.79).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 9% and still well below the 25% trigger line, remaining bullish.
The Open Insider Buy/Sell Ratio dipped to 81.6 as insiders backed off somewhat from their recent buying, staying neutral.
On the other hand, the detrended Rydex Ratio (contrarian indicator) remains very bullish -2.31 as the leveraged ETF traders continue to be highly leveraged short and represent pent-up demand.
This week's AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.97 as the crowd remains fearful.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) also remains on a very bullish signal and still near a decade peak of fear at 42.7/29.4. Such extreme levels of investor fear have typically presaged notable market rallies.
The Investors Intelligence Survey is 42.7/29.4 (very bullish)
S&P 500 Valuation and Treasury Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has slipped to $236.37 per share. As such, the S&P's forward P/E multiple is 16.1x and at a discount to the "rule of 20" finding ballpark fair value at 16.9x.
The S&P's forward earnings yield is 6.23%.
The 10-Year Treasury yield closed lower at 3.07%. We view support as 3.0% and new resistance at 3.51%.
Near-Term Market Outlook
Thursday saw some continuation of recent strength that has yielded signs of encouragement on the charts. Meanwhile, market sentiment remains extremely fearful and the S&P 500 is trading at a discount to ballpark fair value. Therefore, some clouds are lifting but, in our view, violations of resistance on the charts are still needed for strength to continue.
