Our review of Thursday's trading action continues to imply some sideways movement for the markets, which we now believe has become more defined given the S&P 500 and Dow Jones Industrial Average are both testing their near-term resistance levels as well as support within the day's range.
With that said, we believe some very selective buying may continue as our technical review of individual names remains rather narrow regarding attractive risk/reward.
S&P & DJIA Define New Trading Ranges
Source: Worden
On the charts, the major equity indexes closed mixed with mostly negative internal data as the S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 posted gains as the rest declined.
All closed near the midpoints of the session with Russell 2000 closing below support, which left the near-term trends neutral for the Nasdaq Composite and Nasdaq 100 as the rest stayed near-term negative.
We would draw attention to the S&P 500 (see above) and DJIA (see below) charts as both tested their near-term resistance and support levels within the session that suggest their trading ranges have become more defined.
Cumulative market breadth continued its neutral outlook for the All Exchange, NYSE and Nasdaq while stochastic reading failed to produce any crossover signals.
Source: Worden
Data Suggest Sideways Action
The data dashboards, as was the case Thursday, is generally neutral and offering little in the way of near-term probabilities.
Only the NYSE 1-Day McClellan Overbought/Oversold Oscillator is oversold with the All Exchange and Nasdaq neutral (All Exchange: -46.02 NYSE: -62.52 Nasdaq: -36.46).
On the other hand, the percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is 18% and is back on a bullish signal.
The Open Insider Buy/Sell Ratio dropped to 65.1, staying neutral as insiders again moderated from their recent buying spree.
The detrended Rydex Ratio (contrarian indicator) rose to -0.38, 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.
Valuation Gap Remains an Issue
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 slipped slightly to $220.68 per share. Thus, the valuation gap is still somewhat of an issue with the S&P's forward P/E multiple at 17.9x while the "rule of 20" ballpark fair value rose to 16.6x.
The S&P's forward earnings yield is 5.59%.
The 10-Year Treasury yield closed lower at 3.4%. It is short-term neutral with support at 3.40% and resistance at 3.62%, by our amalysis.
Our Market Outlook
The charts and data suggest some sideways action for the present with some selective buying.
