Thursday's market action was certainly welcomed by investors, especially after Wednesday's rally. However, not to rain on the parade, but all the near-term downtrends on the major equity indexes remained intact as they failed to be violated.
Yet, there was some encouragement as several of the charts generated bullish stochastic crossover signals and are suggestive of more potential strength. Meanwhile, the data find two of the three McClellan OB/OS Oscillators oversold along with the typically wrong leveraged ETF traders leveraged short, also offering encouragement.
Therefore, we are stepping out a bit on the proverbial limb to speculate that more market upside potential continues to be present over the near-term.
Let's Check on the Charts
All the major equity indexes closed higher Thursday with positive internals as all closed near their intraday highs. However, the gains were insufficient to push the charts above their near-term downtrend lines, which remain intact until violated.
Yet, we are now speculating said downtrends may see violations as the oversold stochastic levels generated "bullish crossover" signals on the S&P 500 (see above), Nasdaq Composite, Nasdaq 100, Midcap 400, Russell 2000 and Value Line Arithmetic Index.
Market cumulative breadth also improved with the All Exchange, NYSE and Nasdaq A/D lines moving to neutral from bearish.
Data Still Offer Encouragement
The McClellan Overbought/Oversold Oscillators still oversold on the All Exchange & NYSE with the Nasdaq's turning neutral (All Exchange: -56.1 NYSE: -69.85 Nasdaq: -46.11).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 55% and remains neutral.
The Open Insider Buy/Sell Ratio slipped to 63.9%, staying neutral.
The detrended Rydex Ratio (contrarian indicator) is still on a green light at -1.6 as the typically wrong leveraged ETF traders are deeply leveraged short, staying on a bullish signal.
This week's AAII Bear/Bull Ratio (contrarian indicator; see below) rose to 1.57 and is now in bullish territory.
The AAII Bear/Bull Ratio is 1.57 (very bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is 30.1/38.4 neutral with an increase in bears and drop in bulls.
Market Trading at a Slight Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 has dropped to $232.80 per share. As such, its forward P/E multiple is 17.2x and at a slight premium to the "rule of 20" ballpark fair value at 16.7x.
The S&P's forward earnings yield is 5.81%.
The 10-Year Treasury yield closed higher at 3.29%. We view support at 3.08% with resistance at 3.48%.
Our Market Outlook
While the near-term downtrends on the charts have yet to yield to buying pressure, the data, which projected recent gains, suggest more market strength may appear over the very near term.