All the major equity indexes closed higher Thursday with positive internals on the NYSE and Nasdaq. All closed at or near their intraday highs.
However, no violations of resistance were generated, leaving all in near-term neutral trends.
Still, market data continue to suggest tests of the chart resistance levels over the near term. The only outlier, in our opinion, is valuation as 12-month forward consensus earnings estimates for the S&P 500 continue to erode (see below).
On the Charts
All the major equity indexes closed higher Thursday with positive internals and all closing near their intraday highs.
However, the strength was insufficient in its ability to push the indexes above their near-term resistance levels, leaving all in near-term neutral trends.
Yet cumulative market breadth improved with the advance/decline lines for the All Exchange, NYSE and Nasdaq turning neutral from negative.
We would also note the Value Line Arithmetic Index generated a bullish stochastic crossover signal while the S&P 500, Nasdaq Composite and Nasdaq 100 (see above) remain oversold with potential to send a signal similar to the Value Line index.
Deep Dive on the Data
The McClellan Overbought/Oversold Oscillators remain neutral and not threatening at current levels, in our view (All Exchange: -12.87 NYSE: -13.68 Nasdaq: -12.46).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) rose to 84% and is now cautionary versus its prior neutral implication.
The Open Insider Buy/Sell Ratio rose again to 54.8% as insiders did a little buying but remained neutral as well.
The detrended Rydex Ratio (contrarian indicator) dipped to -0.74 and is also neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) was unchanged at 1.28, staying on a bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) was also unchanged with the number of bears dropping and bulls at 27.8/44.4 (mildly bullish). Its three-week moving average is mildly bullish at 70.75.
S&P Trading at a Premium
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 continued to shrink down to $232.51 per share. As such, the valuation spread widened a bit and is still at a premium to ballpark fair value via the "rule of 20" with the S&P's forward P/E multiple at 18.1x versus 17.0x.
The S&P's forward earnings yield is 5.54%.
The 10-Year Treasury yield closed lower at 3.03%. Support is at 2.92% with resistance at 3.16%.
We speculated in our Thursday column that the charts and data were implying a possible test of the various index resistance levels. The close, in our opinion, added to that likelihood given the neutral OB/OS levels, breadth improvement and stochastic implications. Our one concern is the continuing deterioration of S&P earnings expectations that have pushed valuation to a premium.