All the major equity indexes closed Friday near their session highs with the large-cap indexes registering some positive technical events. The chart near-term trends are now evenly split between neutral and bearish projections while NYSE cumulative breadth improved. \
The data readings are generally neutral and non-threatening, despite Friday's strong action. In fact, insiders have accelerated their buying activity while the spread between the S&P 500's forward P/E and ballpark fair value narrowed.
Given the data and charts, we now believe some cautious buying may be appropriate.
Large-Cap Index Charts Improve
Chart Source: Worden
On the charts, all the major equity indexes closed higher Friday with broadly positive internals as all closed near their session highs.
Some chart improvements were seen with the S&P 500 (see above), Nasdaq Composite and Russell 2000 closing above resistance.
Also, the S&P, DJIA and Nasdaq Composite closed above their near-term downtrend lines, shifting to neutral from bearish as is the Nasdaq 100. The rest remain near-term bearish.
While cumulative market breadth remains negative on the All Exchange and Nasdaq, the NYSE A/D turned neutral from bearish, offering some slight improvement.
We would also note none of the stochastic levels are overbought while the VALUA gave a bullish crossover signal Friday.
Data Generally Neutral as Insiders Increase Buying Activity
The data dashboard remains largely neutral in spite of Friday's surge.
The NYSE and All Exchange 1-day McClellan Overbought/Oversold Oscillators are all neutral (All Exchange: +0.95 NYSE: -19.13 Nasdaq: +12.74).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral, lifting to 51%.
The Open Insider Buy/Sell Ratio rose to 92.4. It remains neutral although insiders have been more aggressive on the buy side over the past few sessions, which we find encouraging.
The detrended Rydex Ratio (contrarian indicator) is +0.14, also staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) was 1.4, turning bullish from mildly bullish as crowd fear rose.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 51%.
Valuation Gap Widens
Importantly, the forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 that saw a sizable upturn in expectations last Friday, rising to $224.49 per share, slipped slightly to $219.19. As such, the valuation gap widened with the S&P's forward P/E multiple lifting to 18.4x versus the "rule of 20" ballpark fair value is 16.6x. In our opinion, it still implies some degree of lessening of market risk that had been so prevalent of late.
The S&P's forward earnings yield is 5.42%.
The 10-Year Treasury yield closed higher at 3.45%. It is in a short-term neutral trend. We see support at 3.29% and resistance at 3.46%, by our analysis.
Bottom Line
Chart improvements combined with non-threatening data and improved S&P 500 EPS estimates suggest buying weakness may now be appropriate on selective names.
