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More Resistance Levels Violated as S&P 500's Valuation Remains Extended

All of eight of the equity indices we follow are now in short-term uptrends.
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Charts of the major equity indices continue to improve and close above resistance levels, leaving all in near-term uptrends.

The data, however, has turned a bit more mixed, while valuation continues to appear increasingly more extended.

Let's take a close look at the latest charts and data.

On the Charts

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Source: Worden

All the indices closed higher Tuesday with positive internals on the NYSE and Nasdaq on heavier trading, with the Nasdaq 100 (see above) being the one outlier as it posted a decline.

Improvements were seen on the DJIA, Doe Jones Transports, Russell 2000 and Value Line Arithmetic Index as all closed above their near-term resistance levels.

All of eight of the equity indices we follow are now in short-term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.

Once again, the stochastic levels are overbought but have yet to generate cautionary "bearish stochastic crossover" signals.

In our opinion, sell signals have yet to appear on the charts as a whole.

Digging Into the Data

The data has turned a bit more mixed.

The recent market strength has pushed the one-day McClellan Overbought/Oversold Oscillators into overbought territory for the All Exchange, NYSE, and Nasdaq (All Exchange: +71.95 NYSE: +90.13 Nasdaq: +58.3).

The Open Insider Buy/Sell Ratio has seen a pullback in insider buying activity but remains neutral at 40.7.

The detrended Rydex Ratio (contrary indicator) is also neutral at +0.49.

On the positive side, this week's AAII Bear/Bull Ratio (contrary indicator) at 49.4/25.33 continues to register the "crowd" as remaining quite skeptical of the markets despite the dramatic market gains from the March lows.

The counterintuitive percentage of S&P 500 issues trading above their 50-day moving averages is in bearish territory at 82.2%.

View on Valuation

Valuation remains disconcerting with the S&P 500 trading at a P/E of 23.3x consensus forward 12-month earnings estimates from Bloomberg that have dropped further to $128.41 per share, versus the "rule of 20" fair value multiple of 19.3x, suggesting the index remains overvalued.

The S&P's forward earnings yield is 4.29%, while the 10-year Treasury yield is at 0.7%.

Our Outlook

Valuation continues to appear stretched. However, we have yet to see shifts on the charts or in the data that would suggest an alteration of our current "neutral/positive" outlook for the equity markets.

At the time of publication, Oertmann had no positions in any securities mentioned.