Mixed signals and split performance. That's what the market is producing right now.
The major equity indexes Tuesday registered a mix of positive and cautionary signals, leaving the near-term trends a combination of neutral and bullish implications. We are seeing money moving into value stocks and exiting some growth names.
Meanwhile, the data is mixed, yielding no strong implications for near-term activity. The recent rise in the 10 Year Treasury yield has put some downward pressure on the ballpark forward fair valuation for the S&P 500.
On the Charts
Source: Worden
The indexes closed mixed Tuesday with strong trading volume as the NYSE saw positive internal action while the Nasdaq's was negative.
The S&P 500 (see above), Nasdaq Composite and Nasdaq 100 posted declines as the rest advanced.
The close found the DJIA at a new closing high as both the Dow Jones Transports and Value Line Arithmetic Index closed above resistance, turning their near-term trends positive from neutral.
On the other hand, the Nasdaq 100 closed below its near-term uptrend line and is now neutral while also flashing a bearish crossover signal.
So, the near-term trends are neutral for the S&P 500, Nasdaq Composite and Nasdaq 100 with the rest bullish.
Market cumulative breadth was unchanged with the All Exchange and NYSE A/Ds positive and the Nasdaq's neutral. Only the NYSE A/D is above its 50-day moving average in that regard.
Looking at the Data
The McClellan 1-Day Overbought/Oversold Oscillators are mixed with the All Exchange and NYSE somewhat overbought and the Nasdaq dropping to neutral (All Exchange: +50.21 NYSE: +65.51 Nasdaq: +38.3).
The percentage of S&P 500 issues trading above their 50-day moving averages lifted to 78% and remains neutral but near the upper end of its range for last year. It is not a death knell, in our view, but suggests a potential increase in market selectivity.
The Open Insider Buy/Sell Ratio rose to 38.1 and remains neutral.
Meanwhile, the detrended Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, dipped to 1.12 but remains bearish.
This week's contrarian AAII Bear/Bull Ratio dropped to 1.12 but remained bullish as the crowd remains skeptical of the recent rally.
The Investors Intelligence Bear/Bull Ratio (24.4/55.0) (contrary indicator) was unchanged and remains neutral.
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has dipped slightly to $222.05 per share. As such, the S&P's forward P/E multiple is 21.6x with the rule of 20" finding ballpark fair value dipping to 18.3x.
The S&P's forward earnings yield is 4.63%.
The 10-Year Treasury yield rose to 1.67%. We view support for the 10-Year at 1.50% with resistance at 1.7%.
Near-Term Outlook
We remain "neutral/positive" in our near-term macro-outlook for equities as some turbulence has entered the picture with Tuesday's shifting of money moving into value stocks as some growth issues were exited.
