As we begin a new trading week, with plenty on tap, let's look for clues on where this market is headed and how to trade it right now.
On the charts, all the major equity indexes closed lower on Friday with negative NYSE and Nasdaq internals.
However, the weak session had no impact on the current chart trends, which remain bullish for the S&P 500 (see below), Nasdaq Composite and Nasdaq 100, with the Dow Jones Transports bearish and the rest neutral.
Chart Source: Worden
There were no changes regarding cumulative market breadth as well with the NYSE advance/decline line bullish and the All Exchange and Nasdaq neutral.
Stochastic levels are overbought for the Nasdaq indexes and the Russell 2000, but have yet to send bearish crossover signals.
Data Remain Neutral
The data dashboard remains largely neutral, yielding no strong near-term directional implications.
The 1-day McClellan Overbought/Oversold Oscillators are all neutral (All Exchange: -19.74 NYSE: -6.69 Nasdaq: +19.08).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral and unchanged at 49%.
The Open Insider Buy/Sell Ratio dipped to 73.5. It remains neutral as prior insider buying has slackened over the past few weeks.
The detrended Rydex Ratio (contrarian indicator) rose to +0.21, also staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) rose to 1.61 and remains very bullish. In our view, it is the one bright spot on the data dashboard.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is still neutral at 24.3/44.6%.
Valuation Gap Widens and Remains Extended
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 saw a drop to $223.31 per share. As such, the valuation gap widened slightly and is still a bit disconcerting with the S&P's forward P/E multiple at 18.8x versus the "rule of 20" ballpark fair value dipping to 16.3x.
The S&P's forward earnings yield is 5.33%.
The 10-Year Treasury yield closed higher at 3.69%. It is in a short-term bullish trend. We see support at 3.50% and resistance at 3.70%.
We suspect Friday's declines were a normal pause after the prior rally. Yet, while the charts and market breadth have improved lately, the data are neutral while the bullish investor sentiment data are counterbalanced by extended valuation. Thus, we continue to believe the charts and data are suggesting that any buying should be done on a very selective basis.