Three of the major equity indexes closed above their resistance levels Tuesday as most remain in near-term uptrends. The data, however, is mixed.
Indicators reveal some headwinds remain present for the very near-term, while the sentiment data (contrarian indicators) are counterbalancing as bearish expectations remain very high and, in our opinion, represent potential for some sizable demand.
Valuation remains a bit stretched.
We remain of the opinion that price should not be chased as we wait for weakness as a buying opportunity near support.
Indexes Continue to Advance With Most Bullish
Chart Source: Worden
On the charts, all the major equity indexes closed higher Tuesday with positive NYSE and Nasdaq internals as volumes rose on the NYSE and Nasdaq.
All closed near the midpoints of the session with the DJIA, Dow Jones Transports and Value Line Arithmetic Index closing above resistance.
That left all the near-term chart trends positive except for the S&P 500, Nasdaq Composite (see above) and Nasdaq 100 neutral.
Market cumulative breadth also saw improvement with the NYSE advance/decline line turning positive from neutral and above its 50-day moving average. The All Exchange and Nasdaq remain neutral.
The stochastics triggered bullish crossover signals on the Nasdaq Composite and Nasdaq 100.
McClellan Oscillators Are Mostly Overbought
The McClellan Overbought/Oversold Oscillators still find the All Exchange and NYSE overbought with the Nasdaq remaining neutral (All Exchange: +63.2 NYSE: +93.81 Nasdaq: +42.97). They continue to suggest some degree headwind is present.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 64, staying neutral.
The Open Insider Buy/Sell Ratio lifted to 40.3, also staying neutral as insiders did a little buying.
Importantly, in our opinion, the detrended Rydex Ratio, (contrarian indicator), at -2.0, is still very bullish as leveraged short-sellers remain very extended in their leveraged short exposure. We continue to see their status as a potential upside catalyst for the markets.
The detrended Rydex Ratio is -2.0 (very bullish)
This week's AAII Bear/Bull Ratio (contrarian indicator) dipped to 1.69 but also remained on a very bullish signal as is the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 37.3/35.8, as bears continue to outweigh bulls.
Market Valuation at a Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 dipped again to $226.22 per share. As such, its forward P/E multiple is 16.9x and at a premium to the "rule of 20" ballpark fair value of 15.9x.
The S&P's forward earnings yield is 5.9%.
The 10-year Treasury yield closed lower at 4.13%. We view support as 3.97% with resistance at 4.43%.
We continue to believe, given the state of the charts and sentiment when compared to the OB/OS levels and valuation, that buying weakness near support is appropriate.