Every index chart managed to close above its near-term resistance level Tuesday, improving some of the near-term trends, while cumulative breadth has turned positive.
The McClellan oscillators that signaled the recent strength have yet to move into overbought conditions and remain in the middle of their neutral ranges. In our opinion, they continue to suggest some further upside potential over the very near term.
On the Charts
Source: Worden
All the major equity indices closed higher Tuesday with positive internals.
All the indices managed to close above their near-term resistance levels while the DJIA closed back above its 50-day moving average and the S&P 500 and Value Line Arithmetic Index closed back above their near-term uptrend lines.
So, we find the S&P 500, Nasdaq Composite, Nasdaq 100 and Value Line index in near-term positive trends with the DJIA, Midcap 400 and Russell 2000 neutral.
The Dow Jones Transports (see above) is the only index staying in a short-term downtrend. However, even in this case, the index registered a bullish stochastic crossover signal Tuesday.
Breadth was strong enough to shift the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq up to positive from neutral.
On the Data
The McClellan one-day Overbought/Oversold Oscillators are still in neutral territory despite the strong market moves over the past few sessions (All Exchange: -4.5 NYSE: -0.19 Nasdaq: -7.67). Our experience with the OB/OS suggests current levels may indicate more upside over the very short term.
The leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator) moved back into bearish territory at 1.22 as they increased their leveraged long exposure.
And while insiders did do some selling Tuesday, the Open Insider Buy/Sell Ratio remains neutral at 35.0 and lacks a warning signal at this point in time.
This week's Investors Intelligence Bear/Bull Ratio (contrary indicator) remains on a bearish signal at 16.5/61.2, suggesting an excess of optimism still exists on their part.
S&P Valuation
Valuation continues to appear extended. The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg of $170.85 per share leaves the S&P's forward P/E multiple at 22.4x, while the "rule of 20" finds fair value at 18.9x. The valuation spread has been consistently wide over the past several months.
The S&P's forward earnings yield is 4.47% with the 10-year Treasury yield at 1.11%.
Near-Term Outlook
We remain "neutral" in our macro near-term outlook for equities while the OB/OS levels imply more strength may be seen over the very near term.
At the time of publication, Ortmann had no positions in any securities mentioned.