The charts of the major equity indices saw multiple positive technical events Friday while overall market breadth improved. Meanwhile, the bulk of the data remains neutral except for the psychology levels that remain cautionary.
On the Charts
All the indices closed higher Friday with positive internals on the NYSE and Nasdaq on lower treading volume. All but one of the charts saw some form of technical improvement as follows:
-- The S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 all posted new closing highs as the S&P and DJIA closed above their near-term resistance levels.
-- The Midcap 400, Russell 2000 and Value Line Arithmetic Index also closed above their near-term downtrend lines and turned neutral from negative.
-- The MidCap 400 and Value Line index closed above resistance while the Value Line also moved back above its 50-day moving average.
-- The Dow Jones Transports had a good session but was unable to violate either its downtrend line or resistance level.
Source: Worden
Market breadth also saw improvement with the cumulative advance/decline lines for the All Exchange and Nasdaq turning neural from negative and back above their 50 DMAs while the NYSE A/D remains neutral as well.
No stochastic signals of import were generated
Market Data
The data finds the McClellan 1-Day Overbought/Oversold Oscillators, which suggested a pause/bounce Friday morning, have returned to neutral and, in our opinion, are not threatening at this stage (All Exchange: -26.58 NYSE: -21.87 Nasdaq: -29.84).
The Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, declined but remains bearish at 1.29.
Last week's contrarian AAII bear/bull ratio (23.9/43.37) turned neutral from mildly bearish while the Investors Intelligence Bear/Bull Ratio (contrary indicator) remained bearish at 16.2/59.6.
The Open Insider Buy/Sell Ratio dropped to 27.8 as insiders downshifted their buying activity and remains neutral.
Market Valuation
Valuation finds the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg lifting to $199.08 per share. As a result, the S&P's forward P/E multiple is 22.0x with the "rule of 20" finding fair value at approximately 18.6x.
The S&P's forward earnings yield is 4.56%.
The 10-year Treasury yield closed higher at 1.36%. We view support as 1.2% and resistance at 1.44%. The 10-year yield remains in a downtrend from its March peak, which we view as a positive for equities regarding the valuation gap.
Near-Term Outlook
We remain near-term "neutral/positive" in our macro-outlook for equities at this time.
