We're Seeing Some Small Technical Improvements
The technical picture is brightening, but we're still cautious.
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The technical picture is showing some minor improvements, but it's still largely stuck in neutral. And that pesky high-valuation still flashes yellow lights.
Let's take a look at the charts and technicals.
The Big Picture
The major equity indexes closed mixed yesterday, with mixed New York Stock Exchange and positive Nasdaq internals as they closed near the midpoint to upper end of their intraday ranges. The charts did see a bit of improvement with two indexes shifting to neutral from bearish. Additionally, cumulative market breadth also shifted to neutral from bearish, while three bullish stochastic crossover signals came in.
The Charts
The internals were mixed. The S&P 500, Nasdaq and Nasdaq 100 posted gains as the rest declined.
Of note, the S&P 500 and the small-cap Russell 2000 managed to close above their downtrend lines and have now joined the Dow Jones in neutral trends as the rest remain bearish.
The Technicals
We saw some improvement in cumulative market breadth as the advance/decline lines for the All Exchange, NYSE and Nasdaq edged up to neutral from bearish. Bullish stochastic crossovers were also finally generated on the S&P 500, Dow and Dow Transports.
The one-day McClellan overbought/oversold oscillators remain neutral (All Exchange: -32.05; NYSE: -35.02; Nasdaq: -30.68).
The percentage of S&P issues trading above their 50-day moving averages, a contrarian indicator, dipped to 63% and stayed neutral.
The detrended Rydex Ratio is unchanged at 0.66 and neutral.
This week’s American Association of Individual Investors Bear/Bull Ratio, another contrarian indicator, dropped to 0.55 and has shifted from neutral to bearish.
The Investors Intelligence Bear/Bull Ratio, meanwhile, remains neutral at 22.6/53.2.
The Open Insider Buy/Sell Ratio is unchanged at 28.7% and neutral. They are not active buyers yet.
Finally, valuation is still a concern. The 12-month consensus earnings estimate for the S&P from Bloomberg dipped to $258.28. That leaves its forward price-to-earnings at 21.3 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 4.7%.
The Buck and Treasury
The 10-year Treasury yield moved lower to 3.65% and below support. New support is 3.57% and resistance at 3.79%. Its near-term trend is bearish.
The U.S. Dollar, via the Dollar Index Bullish Fund UUP, closed higher at $28.31. Its trend is now neutral with support at $28.17 and new resistance at $28.35.
The Bottom Line
Yesterday’s action was not quite strong enough to suggest a change in the market’s near-term probable action of neutral to negative, despite the chart and breadth improvements. Violations of downtrends and resistance on heavier volume are, in our view, necessary to become more sanguine.