Thursday's market action was strong enough to propel five of the major equity indexes above their respective near-term resistance levels. However, one chart closed fractionally below its near-term uptrend line leaving two charts neutral with the remainder in near-term bullish trends.
Meanwhile, market data remain generally neutral except for the overbought McClellan 1-day OB/OS Oscillators while the valuation gap for the S&P 500 expanded.
So, the charts lack any sell signals with positive breadth where their uptrends should be respected. However, the OB/OS Oscillators and valuation are flashing yellow lights.
As such, we remain of the opinion that buying should be done on weakness when nearer support levels.
Index Charts See More Resistance Levels Violated
Chart Source: Worden
On the charts, the major equity indexes closed mostly higher Thursday with the exception of the Dow Jones Transports posting a decline. Internals were positive on higher volume on the NYSE and Nasdaq.
The buying interest was strong enough to push the S&P 500, Nasdaq Composite (see above), Nasdaq 100, MidCap 400 and Russell 2000 above their respective resistance levels.
However, the Dow Transports closed fractionally below its near-term uptrend line turning said trend to neutral from bullish as is the DJIA. The rest are still in bullish near-term trends.
Cumulative market breadth is strong and above the 50-day moving averages for the All Exchange, NYSE and Nasdaq.
Several stochastic levels remain overbought but have yet to trigger bearish crossover signals.
McClellan OB/OS Still Cautionary
The data dashboard is mostly neutral. However, the 1-day McClellan Overbought/Oversold Oscillators moved deeper into overbought territory and, in our view, continue to suggest a bit of caution (All Exchange: +64.76 NYSE: +80.62 Nasdaq: +55.2).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) was rose to 72% and is on a neutral signal.
The Open Insider Buy/Sell Ratio lifted to 30.6 and is neutral as well.
The detrended Rydex Ratio (contrarian indicator) dropped to -0.55 and is also neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.52 as bearish sentiment declined and has dipped to bullish versus its prior very bullish signal.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 29.6/46.5 as bears declined and bulls rose.
Valuation Is Stretched
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 continued to slip to $224.24 per share. As such, its forward P/E multiple rose to 18.1x and at a higher premium to the "rule of 20" ballpark fair value of 16.5x. We regard it as somewhat stretched.
The S&P's forward earnings yield is 5.52%.
The 10-Year Treasury yield closed higher at 3.49%. It is in a short-term negative trend with support at 3.4% and resistance at 3.67%.
Our Market Outlook
While the charts and breadth remain healthy and should, in our opinion, be respected, the OB/OS levels and valuation spread continue to suggest some caution and selective buying near support levels when available, versus simply chasing price as appropriate at this time.