The major equity indexes closed mixed on Tuesday. Two indexes managed to close above their resistance levels but were not sufficient to alter the near-term trends that are still a mix of bullish, neutral and bearish implications.
Meanwhile, the bulk of the data dashboard remained neutral as did cumulative market breadth. So, while investor sentiment (contrarian indicator) remains fearful and on a bullish signal, valuation remains stretched (see below).
The weight of the evidence, in our opinion, now suggests share prices should not be chased while waiting for some market consolidation for better buying opportunities.
Near-Term Index Trends Remain Mixed
Chart Source: Worden
On the charts, the major equity indexes closed mixed Tuesday with mostly negative internals as the S&P 500, Nasdaq Composite, Nasdaq 100 and Dow Jones Transports posted gains with the rest declining.
However, there were two positive technical events as the Nasdaq 100 (see above) and Dow Transports closed above their resistance levels.
Yet, the near-term trends were unchanged, with the S&P and Nasdaq indexes bullish, the DJIA and Dow Transports bearish and the rest neutral.
Cumulative market breadth was also unchanged and neutral for the All Exchange, NYSE and Nasdaq.
The Nasdaq Composite and Nasdaq 100 are overbought on their stochastic readings but have yet to generate bearish crossover signals.
Data Stay Neutral
The data dashboard remains largely neutral and not sending any high probability movement signals for the near-term.
The 1-day McClellan Overbought/Oversold Oscillators are still neutral (All Exchange: -11.62 NYSE: -22.26 Nasdaq: -3.25).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral, dipping to 33%.
The Open Insider Buy/Sell Ratio rose to 68.8. It also remains neutral.
The detrended Rydex Ratio (contrarian indicator) slipped to +0.25, also staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.51 and remains just inside very bullish territory. In our view, it remains encouraging, but a bit less so.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is still neutral at 23.9/46.5%.
Valuation Spread Remains Wide
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 is unchanged at $222.97 per share. As such, the valuation gap remains wide and is still disconcerting with the S&P's forward P/E multiple at 18.9x versus the "rule of 20" ballpark fair value of 16.3x, suggesting valuation is extended.
The S&P's forward earnings yield is 5.3%.
The 10-Year Treasury yield closed lower at 3.81%. It is now short-term neutral versus its prior bullish trend. We see support at 3.56% and resistance at 3.81%.
Bottom Line
We now believe that the weight of the evidence has shifted slightly, given trends breadth and valuation, so that it may now be appropriate to wait for some consolidation of recent market gains before adding to equity positions as a whole. We would prefer to be buyers on weakness.
