While new closing highs for the major equity indexes continue to be established, two key data points are both flashing yellow warning lights as forward 12-month earnings estimates have S&P 500 weakened a bit.
On the Charts
The DJIA (see below), Dow Jones Transports and MidCap 400 closed higher Friday as the rest posted losses on a mixed session with mixed internals.
The NYSE saw slightly positive breadth but negative up/down volume while the Nasdaq did the opposite.
The DJIA and MidCap 400 managed to register new closing highs while the Dow Transports closed above resistance.
Regarding near-term trends, all remain positive as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
However, the stochastic levels remain quite overbought although no bearish crossover signals have appeared at this point.
The data finds the McClellan 1-Day Overbought/Oversold Oscillator neutral across the board (All Exchange: +33.23 NYSE: +46.55 Nasdaq: +24.46).
Of note, the detrended Rydex Ratio (contrarian indicator, see below), measuring the action of the leveraged ETF traders, turned bearish as they extended their leveraged long exposure up to 1.24.
The detrended Rydex Ratio is 1.24 (bearish)
In contrast, the Open Insider Buy/Sell Ratio remains bearish at 21.4 as insiders have been using recent market strength to lighten up. In our opinion, their relationship suggests some caution is currently warranted.
Last week's contrarian AAII Bear/Bull Ratio (36.43/30.5) remained mildly bullish as bears still outnumber bulls. The Investors Intelligence Bear/Bull Ratio (22.7/42.1) (contrary indicator) remained neutral.
Valuation and Yields
Valuation finds the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg dipping to $213.72. As such, the S&P's forward P/E multiple is 21.3x with the "rule of 20" finding fair value at approximately 18.3x.
The S&P's forward earnings yield is 4.7%.
The 10-Year Treasury yield closed lower at 1.66%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, this trend could prove problematic for equities.
While new closing highs continue to be established, the OI B/S and detrended Rydex Ratio are both flashing yellow warning lights as forward 12-month earnings estimates for the S&P 500 weakened a bit. As such, we believe that a "neutral" near-term macro-outlook for equities is most appropriate.