What's Next for This Bifurcated Market?

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While some of the more cyclical equity indices progress, others are falling behind, leaving the general equity markets somewhat bifurcated.

The near-term chart trends of the eight indices we follow remain a mix of bullish, neutral and bearish implications.

On the Charts

Source: Worden

All the major equity indices closed higher Friday with positive internals.

Technical events of importance saw the S&P 500 (see above), DJIA and Dow Jones Transports post new all-time closing highs.

Meanwhile, the MidCap 400 closed above resistance and back above its near-term uptrend line, turning its trend to positive from neutral.

So, the trend overview finds the S&P, DJIA, Dow Transports, MidCap 400 and Value Line Arithmetic Index bullish with the Nasdaq 100 neutral and the Nasdaq Composite and Russell 2000 bearish.

Cumulative breadth is neutral on the All Exchange and NYSE while the Nasdaq’s remains negative. The breadth trends also contribute to the view of a bifurcated market, in our view.

The MidCap 400 and Value Line index registered bullish stochastic crossover signals.

Market Data

Regarding the data, the oversold McClellan one-day Overbought/Oversold Oscillators moved back to neutral from their prior oversold levels (All Exchange: -24.15 NYSE: -3.61 Nasdaq: -39.25).

The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains neutral at 0.59.

The Open Insider Buy/Sell Ratio saw an uptick in insider buying activity to 36.0 but remains in neutral territory as well.

Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator) changed slightly to a mildly bearish 19.6/55.9 from its prior bearish level.

Market Valuation

Valuation still appears extended with the forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg rising to $174.64 per share, leaving the S&P’s forward P/E multiple at 22.8x while the “rule of 20” finds fair value at 18.3x. We reiterate the valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.

The S&P’s forward earnings yield stands at 4.39%.

The 10-year Treasury yield rose to 1.66% and, in our opinion, remains in an uptrend. We continue to monitor it closely as it has been having rather significant influence on the equity markets.

Near-Term Outlook

Friday’s action saw some positive events on the charts while the data is generally neutral. However, the notably split performance within the indices suggests we maintain our near-term macro-outlook at “neutral.”