As we start a new and busy week, a fresh look at the market's charts and data is in order.
What are the trends on the major equity indexes?
What do the contrarian, sentiment indicators say?
And how does the the market's forward valuation impact our near-term strategy and outlook?
Indexes Close Mixed with Uptrends Intact
Chart Source: Bloomberg
The major equity indexes closed mixed Friday with positive NYSE and Nasdaq internals as all closed near their session highs with positive market internals.
The MidCap 400, Russell 2000 (see above) and Value Line Arithmetic Index posted gains as the rest declined.
There were no technical events of note generated, leaving all the indexes in near-term uptrends and above their 50-day moving averages. We continue to believe said uptrends should be respected until evidence appears that would suggest otherwise.
Regarding cumulative market breadth, it remains positive and above the 50 DMA for the All Exchange, NYSE and Nasdaq.
Several stochastic levels are overbought but have yet to generate actionable bearish crossover signals.
Data Dashboard Is Mixed
The data dashboard remains mixed. the McClellan Overbought/Oversold Oscillators remain in overbought territory on the All Exchange and NYSE with the Nasdaq staying neutral (All Exchange: +55.81 NYSE: 67.7 Nasdaq: +48.21).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) remains in bearish territory, dipping to 90% and near its highest readings for the past two years.
The Open Insider Buy/Sell Ratio slipped to 54.1, staying neutral.
The detrended Rydex Ratio, (contrarian indicator) rose to -0.33, also staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.46, remaining bullish versus its very bullish signal prior to the rally.
Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 30.5/41.7 remained neutral with bulls now outnumbering bears.
Valuation Is Stretched
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 saw a slight uptick to $225.80 per share. As such, its forward P/E multiple stands at 18.0x while remaining at a premium to the "rule of 20" ballpark fair value of 16.5x.
The S&P's forward earnings yield rose to 5.55%.
The 10-Year Treasury yield closed lower at 3.53%. We believe support as 3.45% with resistance at 3.75%.
Our Market Outlook
We repeat that nothing on the charts or market breadth is casting a shadow on the near-term positive index trends. However, the data are relatively ambiguous regarding very near-term action while valuation is stretched. Thus, we remain of the opinion that trends should be respected while buying weakness, preferably near support.