All the major equity indexes closed higher on Friday but on lighter volume than the prior session. Nonetheless, all closed near their intraday highs with several charts breaking above resistance as well as some 150 and 200 DMAs. As such, all the charts remain in near-term bullish trends and still lack potential sell signals.
On the other hand, some of the data signals are getting more cautionary and suggesting the increasing likelihood of some correction/consolidation of the significant market gains post the June market lows. In our opinion, while we continue to respect the near-term uptrends, we would start getting a bit more cautious regarding adding new long positions, as some pauses would not be uncommon given the data levels noted above.
On the charts, all the major equity indexes closed higher Friday with positive internals but on lighter trade volume.
- All closed at or near their intraday highs with only the Dow Jones Transportation failing to break above resistance.
- We would note the S&P 500, Dow Jones Industrial Average, NASDAQ Composite, and NASDAQ 100 closed above their 150 DMAs while the MID and VALUA closed above their 200 DMAs.
- As such, there is nothing to argue with on the charts while market cumulative breadth remains strong on the All Exchange, NYSE and NASDAQ.
- All stochastic levels are overbought but have yet to generate any bearish crossover signals.
On the data, the McClellan OB/OS Oscillators are becoming more onerous.
- All are overbought with the NYSE extremely overbought (All Exchange: +97.58 NYSE: +109.46 Nasdaq: +90.03) while the 21-day levels are the highest since November of 2020. They suggest price sensitivity is likely prudent.
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) moved further into bearish territory at 92%. As a point of reference, it was around 13% at the June market lows.
- The Open Insider Buy/Sell Ratio slipped 37.3 staying neutral.
- The detrended Rydex Ratio (contrarian indicator) ticked up to -0.28 and is neutral as well.
- Last week’s AAII Bear/Bull Ratio (contrarian indicator) moderated further as the crowd became a bit less fearful at 1.38. Thus, it is now “bullish” versus its prior “very bullish” implications.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) also moderated, stay neutral with the number of bears dropping and bulls increasing at 30.1/41.1.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX had a minor uptick to $233.05. As such, the valuation spread has widened notably with the SPX forward multiple at 18.4 and a premium to the “rule of 20” ballpark fair value at 17.2. T
- he SPX forward earnings yield is 5.45%.
- The 10-year Treasury yield closed lower at 2.85% and still within its trading range with support at 2.72% and resistance at 2.91%.
In conclusion, to keep things in perspective, the DJI is up over 4,000 points from its June low with the McClellan OB/OS flashing red as valuation has become, in our opinion, somewhat stretched. By our interpretation, they suggest some prudence should be exercised currently within the ongoing uptrends.