Clouds Part on the Charts
The Dow makes a new closing high as we see safety for selective buying.
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The charts are finally improving as the Dow Jones Industrial average makes a new closing high.
Equity indexes closed near their session highs Friday with positive New York Stock Exchange and Nasdaq internals and technicals.
Most notable, the Dow made another new closing high.
Cumulative market breadth remains generally positive as well while the data dashboard is mixed, but leaning to the bullish side as the McClellan one-day overbought/oversold oscillators stayed neutral. (All Exchange: 32.51; NYSE: +44.38; Nasdaq: +26.01).
At the same time, investor sentiment that had been excessively bullish has cooled to the point of turning neutral and less threatening.
On the flip side, forward valuation of the S&P 500, based on Bloomberg’s forward 12-month earnings estimates, remains quite extended above ballpark fair value. So, valuation remains a concern, as the 12-month consensus earnings estimate for the S&P rose to $258.23, but leaves its forward price-to-earnings of 21.9 still well above the “rule of 20" ballpark fair value at 16.1. (Earnings yield rose slightly to 4.57%.) We believe this premium P/E remains significant and presents some risk.
Also, the percentage of S&P issues trading above their 50-day moving average, a contrarian indicator, rose to 81% and now on a bearish signal that has been a prophetic indicator ahead of corrections.
The Charts
As all the major equity indexes closed higher Friday, the S&P, Nasdaq 100 and Dow Jones Transports closed above resistance.
Also, the S&P, Dow and Dow Transports closed above their downtrend lines and are now bullish. So is the Russell 2000. The Nasdaq composite index, Nasdaq 100 and mid-caps are neutral.
Cumulative breadth remains bullish for the All Exchange and NYSE with the Nasdaq’s neutral.
Technicals
The detrended Rydex Ratio, a contrarian indicator, dipped to 1.0 and is only mildly bearish. This week’s American Association of Individual Investors' Bear/Bull Ratio, also a contrarian indicator, dropped 0.67 but stayed neutral.
Also, the Investors Intelligence Bear/Bull Ratio dropped to neutral from bearish at 21.9/50.0.
The prior excess of bullish sentiment has dissipated.
The Open Insider Buy/Sell Ratio slipped to 28.7% and is neutral.
The Treasury, the Buck
The 10-year Treasury yield moved higher to 3.91%. Support is 3.70% and resistance at 3.%. Its near-term trend is neutral.
The U.S. Dollar, via the Dollar Index Bullish Fund UUP, closed higher at $28.27 and above resistance. Its trend is neutral with support at $28.17 and new resistance at $28.37.
The Bottom Line
In conclusion, we continue to believe it's safe for selective buying in names trading near volume support and discounts to their forward one-year growth rates and positive fundamentals.