Most Charts, Breadth Now Near-Term Bullish
The data appears neutral, but we're seeing some positive developments.
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The index charts and cumulative breadth are both looking bullish.
Let's check the charts and technicals to see how we got here, what's still lagging and our lingering concern.
First, all the major equity indexes closed higher Friday with positive New York Stock Exchange and Nasdaq internals, as trading volumes slipped below those of the prior session. Most closed near their session highs. All closed above their near-term resistance levels, turning all but the Transports to bullish trends. Additionally, cumulative market breadth turned bullish as well.
The data remains generally neutral, but some of the sentiment indicators have also become more encouraging.
The catch? Forward valuation of the S&P 500 remains extended.
The Charts
All the major equity indexes are in bullish trends, but the Dow Jones Transports remains neutral. Cumulative market breadth was supportive as the advance/decline lines for the All Exchange, New York Stock Exchange and Nasdaq turned bullish as well.
The stochastic signals that previously saw bullish crossovers presaging the strength last week did not generate any new signals of note.
The data is still largely neutral but two of the sentiment indicators are more encouraging: The one-day McClellan overbought/oversold oscillators remain mostly neutral. Only the NYSE is overbought. (All Exchange: 47.92; NYSE: 58.17; Nasdaq: 41.67).
The percentage of S&P issues trading above their 50-day moving averages rose to 72% and stayed neutral. Remember, that's a contrarian indicator.
The Technicals
The detrended Rydex Ratio, a contrarian indicator, dropped further to a neutral 0.30. The typically wrong leveraged exchange-traded fund traders are not believers of the rally. In contrast, the Open Insider Buy/Sell Ratio, rose to 39.7% vs. 28.7% as insiders increased their buying as it remains neutral.
Last week’s American Association of Individual Investors Bear/Bull Ratio, another contrarian indicator, dropped to 0.55 and shifted from neutral to bearish. The Investors Intelligence Bear/Bull Ratio, also a contrarian indicator, remained neutral at 22.6/53.2.
Finally, valuation is still a concern. The 12-month consensus earnings estimate for the S&P 500 from Bloomberg dipped to $258.06. That leaves its forward price-to-earnings at 21.8 still well above the “rule of 20” ballpark fair value at 16.4. We believe this premium still presents some risk. Its earnings yield slipped to 4.59%.
The Treasury, the Buck
The 10-year Treasury yield was unchanged at 3.65%. Support is 3.57% and resistance at 3.79%. Its near-term trend is bearish. The U.S. Dollar, via the U.S. Dollar Index Bullish Fund UUP, closed lower at $28.18. Its trend is neutral with support at $28.17 and resistance at $28.35.
The Bottom Line
In conclusion, we believe there is currently enough evidence available to suggest buying individual names on weakness that meet our requirements to be long candidates.