Markets are in the the green Wednesday morning, but whether resistance levels can be violated has yet to be determined.
When we add valuation to the mix, our overall conclusion is the current environment remains very much a stock picker's market within trading ranges that have yet to be surmounted.
Let's take a close look at the equity index charts and market indicators to inform our strategy going forward.
Indexes Close Mixed Within Trading Ranges
Chart Source: Worden
On the charts, the indexes closed mixed Tuesday with positive NYSE and negative Nasdaq internals on lighter volume.
The Dow Jones Transports, MidCap 400, Russell 2000 and Value Line Arithmetic Index closed higher as the rest posted losses.
The only technical event registered of import was the MidCap closing above its near-term downtrend line (see above) and is now neutral versus its previous negative trend. It joins the Nasdaq Composite, Nasdaq 100 and Russell 2000 in that status as the rest are near-term bearish.
As such, the trading ranges remain intact.
Cumulative market breadth saw improvement on the NYSE as its advance/decline line turned bullish while the All Exchange and Nasdaq A/Ds remain neutral.
No stochastic signals were generated.
Data Remain Neutral
The data dashboard is still almost entirely neutral, including all the 1-Day McClellan Overbought/Oversold Oscillators (All Exchange: +9.19 NYSE: +27.67 Nasdaq: -3.48).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral lifting to 25%.
The Open Insider Buy/Sell Ratio dipped to 62.7 but stayed neutral as well.
The detrended Rydex Ratio (contrarian indicator) rose to +0.04, staying neutral.
The one outlier remains this week's AAII Bear/Bull Ratio (contrarian indicator), which rose to 2.14 (see below) and is very bullish as crowd fear has intensified.
The AAII Bear/Bull Ratio is 2.14 (Very Bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 28.8/39.7.
Valuation Remains Extended
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 have slipped to $220.43 per share. Thus, the valuation gap is still somewhat of an issue with the S&P's forward P/E multiple at 18.0x while the "rule of 20" ballpark fair value slipped to 16.4x.
The S&P's forward earnings yield is 5.55%.
The 10-Year Treasury yield closed higher at 3.56% and one basis point above resistance. It is short-term bearish with support now at 3.37% and new resistance at 3.58%, by our analysis.
Our Market Outlook
The bulk of the evidence noted above continues to imply we are in a near-term trading range that will persist until some violations of resistance are presented. With the charts split, the data largely neutral and valuation somewhat extended, our conclusion is a stock-picker's market currently exists with very selective buying still the rule of the day.
