The major equity indexes closed higher Tuesday with positive NYSE, and Nasdaq 100 internals as total trading volumes declined on both from the prior session. All closed at or near their intraday highs resulting in four of the index charts closing above their resistance levels. As such, all but one remains in near-term bullish trends, as does cumulative market breadth.
However, some of the data discussed below is starting to suggest the recent market strength may be shifting toward some degree of weakness that, in our view, would be a normal consolidation if the recent rally gains. As such, our work suggests we exercise some patience at current levels as the data implies that better buying opportunities may be forthcoming.
On the charts, all the major equity indexes closed higher yesterday with positive internals on lighter volume as the recent rally continued.
- The close found all at or near their session's highs, with the COMPQX, S&P Midcap 400, RTY, and VALUA closing above their resistance levels.
- Regarding near-term trends, all remain bullish except for the NDX staying neutral.
- Also, the Dow Jones Transportation closed above its 200 DMA.
- Cumulative market breadth strengthened further with the All Exchange, NYSE, and NASDAQ advance/decline lines bullish and above their 50 DMAs.
- The only fly in the ointment is the stochastic levels that are now overbought on all but two. Yet, they have not triggered bearish crossover signals thus far.
On the data front, some clouds are starting to appear, suggesting that chasing the current rally may not be prudent.
- The McClellan OB/OS Oscillators remain in overbought with the NYSE very overbought (All Exchange: +98.88 NYSE: +106.97 Nasdaq: +93.03). They suggest some consolidation as becoming more likely over the near term.
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 65.0%, staying neutral.
- The Open Insider Buy/Sell Ratio remains neutral as it slipped to 26.5 from 40.7%as they stepped back from the buying window.
- The detrended Rydex Ratio (contrarian indicator page 8) rose further to -1.58 as the leveraged ETF traders did some further short covering. However, it remains on a bullish signal and a potential upside catalyst, in our opinion.
- This week’s AAII Bear/Bull Ratio (contrarian indicator page 8) moved higher to 2.11 as bearish sentiment increased and on a very bullish signal.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator page 8) is bullish at 33.81/36.6 as the number of bears rose and bulls declined.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX dipped to $227.34. As such, its forward p/e is 17.2 and remains at a premium to the “rule of 20” ballpark fair value of 16.2 as the spread widened.
- The SPX forward earnings yield is 5.8%.
- The 10-year Treasury yield closed higher at 3.62%. We view support as 3.51% and resistance at 3.77%.
In conclusion, while the charts and breadth remain positive, some data suggest a slight tempering of enthusiasm as to possible consolidation leading to better buying levels.