All the major equity indexes closed higher Wednesday with positive NYSE and NASDAQ internals as both traded heavier volume than the prior session. All closed near their intraday highs. Some technical improvements came in the form of violations of resistance and some intermediate downtrend lines that had been in effect since April 1.
The net result is all the charts are in near-term uptrends, as is cumulative market breadth for the All Exchange, NYSE, and NASDAQ.
The rally pushed the 1-day McClellan POB/OS Oscillators back into overbought territory that may temper the very near-term as forward 12-month consensus earnings estimates from Bloomberg for the SPX continue to slip to the point that the forward P:E is just shy of the “rule of 20” ballpark fair value. As such, we speculate that some near-term sideways action may be forthcoming within an overall improving environment for equities.
On the charts, all the major equity indexes closed higher yesterday with strong internals on heavier volume as all closed at or near their intraday highs.
- Positive technical events were registered on the NASDAQ Composite, NASDAQ 100, and VALUA as they closed above their respective resistance levels.
- As well, the S&P Midcap 400 and VALUA closed above their intermediate term downtrend lines that had been stifling progress since April 1.
- As such, all the charts are near-term bullish as are the cumulative advance/decline lines for the Al Exchange, NYSE Composite and NASDAQ.
- No stochastic signals were generated.
However, yesterday’s rally pushed the McClellan OB/OS Oscillators back into overbought territory that may exercise some restraint of progress for the near-term (All Exchange: +69.27 NYSE: +92.92 NASDAQ: +53.7).
- The % of S&P 500 issues trading above their 50 DMAs (contrarian indicator) remains neutral, lifting to 66%.
- The Open Insider Buy/Sell Ratio slipped to 42.2, also staying neutral.
- The detrended Rydex Ratio rose to -0.92 and is mildly bullish versus its previous bullish status a few weeks ago.
- This week’s AAII Bear/Bull Ratio (contrarian indicator finds the crowd staying very fearful, at 1.86 and very bullish.
- However, the Investors Intelligence Bear/Bull Ratio moderated to neutral with the bears and bulls being dead even at 35.2/35.2.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX continue to decline and down to $236.07. As such, the SPX forward multiple rose to 17.0 with the “rule of 20” ballpark fair value at 17.3, narrowing the spread.
- The SPX forward earnings yield dropped to 5.87%.
- The 10-year Treasury yield closed lower at 2.73. We view support as 2.71% and resistance at 3.04%.
In conclusion, yesterday’s rally had a very constructive impact on the charts and market breadth. However, the OB/OS and narrowing of the SPX forward P:E to ballpark fair value suggest w may see the markets take a “time out” over the very near term before resuming progress.