As we close out a volatile and drama-filled week, let's check the market's dashboard.
The charts of all the major equity indexes saw some improvements Thursday in the form of violations of resistance as well as some bullish stochastic crossover signals being generated. However, cumulative market breadth has yet to climb out of its recent negative trends.
On the plus side, the oscillators that predicted Thursday's bounce remain oversold while insiders continue to increase their buying activity despite the lift in prices.
We believe there is still enough fuel in the tank to suggest the market may have further to go.
Strong Rally Improves Charts
Chart Source: Worden
On the charts, all the major equity indexes closed higher Thursday with positive internals. All closed near their intraday highs and saw strong demand throughout the session that is worthy of note.
Several chart improvements occurred as the S&P 500 (see above), Nasdaq Composite and Nasdaq 100 closed above resistance.
Also, the Dow Jones Transports closed above its accelerated downtrend line, which implies we may have seen the worst for that sector.
Thus, the near-term trends for the Nasdaq Composite and Nasdaq 100 shifted to neutral from bearish. Yet the rest are still short-term bearish.
However, cumulative market breadth for the All Exchange, NYSE and Nasdaq remains in downtrends at this point.
Still, some encouraging bullish stochastic crossovers were registered on the DJIA, Midcap 400, Russell 2000 and Value Line Arithmetic Index.
McClellan Oscillators Still Oversold as Insiders Continue Buying
The data dashboard that predicted Thursday's bounce are still constructive.
The 1-Day McClellan Overbought/Oversold Oscillators remain in oversold territory, versus very oversold, despite the sizable market gains (All Exchange: -61.10 NYSE: -69.65 Nasdaq: -55.52). In our opinion, they suggest the potential for some further strength.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) moved back to neutral from bullish at 23%.
Importantly, the Open Insider Buy/Sell Ratio still finds insiders continue to increase their buying activity as it rose to 90.7 and neutral. They have been very active buyers while the crowd has been running for cover, a dynamic that is typically bullish for equities.
The detrended Rydex Ratio (contrarian indicator) is unchanged at -0.42, staying neutral.
This week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.79 and now very bullish with very high investor fear.
The AAII Bear/Bull Ratio Is 1.79 (Very Bullish)
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 24.7/45.2.
Valuation Remains at a Premium
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 rose to $220.69 per share, slightly widening the valuation gap with its forward P/E multiple at 17.7x while the "rule of 20" ballpark fair value dipped to 16.4x. It remains at a premium.
The S&P's forward earnings yield is 5.57%.
The 10-Year Treasury yield closed higher at 3.59%. It is short-term neutral with support at 3.40% and resistance at 3.62%, by our analysis.
Our Market Outlook
The data suggest there may be more upside left, warranting selective buying to continue.
