As the Federal Reserve interest-rate decision approaches Wednesday afternoon, where do the markets stand?
Let's check the market's charts and indicators to see if this is a good time to buy.
Consolidation Continues As Indexes Close Mixed
On the charts, the major equity indexes mixed Tuesday with positive NYSE internals while the Nasdaq registered positive breadth but somewhat negative up/down volume.
The close found all near their intraday lows. However, all the charts managed to stay in near-term uptrends with no violations of support. We continue to respect the current trends.
Market breadth remains positive as well for the cumulative advance/declines on the All Exchange, NYSE and Nasdaq.
The stochastic readings remain mostly overbought as they have been for the past several sessions. Yet no new bearish crossover signals were generated from Tuesday's action.
McClellan Oscillators Remain Overbought With Sentiment Data Positive
The data still find the McClellan Overbought/Oversold Oscillators overbought with the NYSE very overbought (All Exchange: +98.87 NYSE: +118.16 Nasdaq: +86.27). They remain cautionary. We reiterate there are occasions when the levels can decline by the markets moving sideways.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 62%, staying neutral.
The Open Insider Buy/Sell Ratio slipped to 42.1, also staying neutral. The detrended Rydex Ratio, (contrarian indicator) deepened to -1.46 as leveraged short sellers remain leveraged short, continuing its bullish signal.
This week's AAII Bear/Bull Ratio (contrarian indicator) (see below)dipped to 2.27 but also remains on a very bullish signal as does this week's Investors Intelligence Bear/Bull Ratio (contrary indicator) at 38.5/36.9 as bears dropped and bulls rose but remains on its bullish.
The AAII Bear/Bull Ratio is 2.27 (very bullish)
Valuation Is a Little Stretched
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 finally saw an uptick to $227.98 per share. As such, the S&P's forward P/E multiple is 16.9x and at a premium to the "rule of 20" ballpark fair value of 16.0x.
The S&P's forward earnings yield is 5.91%.
The 10-Year Treasury yield closed lower at 4.05%. We continue to view support as 3.85% with resistance at 4.43%.
Our Market Outlook
We continue to believe that the overall outlook for the equity markets is positive. However, we are not chasing price given the levels of the OB/OS Oscillators and valuation. We prefer buying on weakness near support.
