As we await the Fed's decision Wednesday afternoon, let's take the market's pulse.
All the major equity indexes closed higher on Tuesday with positive NYSE and Nasdaq internals as trading volumes declined on both from the prior session. All closed at or near their intraday highs as several violated their resistance levels, which had a positive impact on their near-term trends with two turning near-term bullish. Importantly, cumulative market breadth improved as well.
The McClellan 1-day OB/OS Oscillators that were oversold and presaged Tuesday's rally are now neutral as is the rest of the data. While not negative, this may suggest a slowing of progress near term.
We would add that valuation has become stretched once again, which suggests, while the markets have improved, selectivity on the buy side remains appropriate.
Chart Trends & Market Breadth Improve
Chart Source: Worden
On the charts, the major equity indexes closed higher Tuesday with positive internals on the NYSE and Nasdaq.
All closed near their highs of the session with the S&P 500 (see above), DJIA, Nasdaq Composite, Nasdaq 100 and Russell 2000 closing above resistance.
This resulted in the Nasdaq Composite and Nasdaq 100 near-term trends turning bullish from neutral while the DJIA turned neutral from bearish.
As such, we find the trend still negative on the S&P 500 with the Nasdaq Composite and Nasdaq 100 bullish and the rest neutral.
More good news came from the market's cumulative breadth as the advance/decline lines for the All Exchange, NYSE and Nasdaq turned neutral from bearish.
The Value Line Arithmetic Index registered a bullish stochastic crossover adding to the mix.
Data Turn Neutral
The data dashboard is now neutral and, in our opinion, suggests some possible slowing of recent progress. Yet it remains non-threatening.
The 1-Day McClellan Overbought/Oversold Oscillators are now neutral across the board (All Exchange: -18.58 NYSE: -19.87 Nasdaq: -17.01).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is unchanged at 24% and on a neutral signal.
The Open Insider Buy/Sell Ratio saw a dip to 79.9, staying neutral, as they moderated from their recent buying spree.
The detrended Rydex Ratio (contrarian indicator) is unchanged at -0.36, staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) is still encouraging, however, as in contrast to the insider buying, it rose to 2.0 as the crowd became even more fearful. Their extreme fear as the insiders have been buyers is a typically bullish signal for the markets in general.
The AAII Bear/Bull Ratio is 2.0 (very bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 27.8/40.3.
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 lifted to $220.70 per share, widening the valuation gap with its forward P/E multiple at 18.1x while the "rule of 20" ballpark fair value dipped to 16.4x. Now that valuation is starting to look stretched again, we believe being very selective on the buy side remains appropriate as said valuation implies some potential for vulnerability.
The S&P's forward earnings yield is 5.51%.
The 10-Year Treasury yield closed higher at 3.61%. It is short-term neutral with support at 3.40% and resistance at 3.62%, by our analysis.
Our Market Outlook
The charts and data that projected recent market strength have proved propitious. So, while the charts and breadth have improved, the now neutral data and noted valuation suggest some pause.