The major equity indexes closed mostly higher Monday, except for the Dow Jones Transportation, which posted a minor loss. All closed at or near their intraday highs resulting in no new technical events of import, leaving each in its near-term bullish uptrend, which, in our opinion, should continue to be respected.
The data is mostly neutral, with the exceptions of the McClellan 1-Day OB/OS Oscillators staying overbought and the % of S&P 500 stocks trading above their 50 DMAs implying the markets are a bit overextended currently. Also, instead of the SPX trading at a discount to ballpark fair value for the past several weeks, it is now trading at a premium. As such, we believe some consolidation of recent gains is becoming more likely with the potential for more advantageous entry points.
On the charts, all the major equity indexes, except for the DJT, closed higher yesterday with mixed NYSE and positive NASDAQ internals as all closed at or near their intraday highs.There were no technical events of import generated on the charts, leaving all in their respective near-term uptrends and above their 50 DMAs.
- Cumulative market breadth remains strong on the All Exchange, NYSE and NASDAQ as well.
- And while the stochastic levels remain overbought across the board, they have yet to register cautionary bearish crossover signals.
However, the data is casting a few cautionary shadows.
- The McClellan OB/OS Oscillators reman cautionary as all remain overbought, but less so than yesterday’s readings (All Exchange: +86.43 NYSE: +89.10 NASDAQ: +85.72). We remain of the opinion that they suggest some short-term caution is warranted.
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) remains bearish territory at 91%. We reiterate, as a point of reference, it was around 13% at the June market lows.
- The Open Insider Buy/Sell Ratio rose to 39.7 and remains neutral.
- The detrended Rydex Ratio (contrarian indicator) ticked down to -0.41 and is neutral as well.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) moderated further as the crowd became a bit less fearful at 1.28, staying on a bullish.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) also moderated with the number of bears dropping and bulls increasing at 27.8/44.4. Its 3-week moving average remains bullish at 83.79.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX as of yesterday morning was $233.05. As such, the valuation spread has widened with the SPX forward multiple at 18.4 and a premium to the “rule of 20” ballpark fair value at 17.2.
- The SPX forward earnings yield is 5.42%.
- The 10-year Treasury yield closed lower at 2.79% and still within its trading range with support at 2.72% and resistance at 2.91%.
In conclusion, the DJI is up over 4,000 points from its June low with the McClellan OB/OS cautionary as valuation has become, in our opinion, somewhat stretched. In our view, they suggest some patience should be exercised currently within the ongoing uptrends.