All the major equity indexes closed Wednesday near their highs of the day as several violated their respective resistance levels, leaving all the indexes in bullish near-term trends. What’s more, the “ascending triangle” patterns saw positive resolutions.
Market breadth remains positive across the board.
Meanwhile, the data shows the leveraged ETF traders have been covering their shorts but remain leveraged short while the McClellan 1-day OB/OS oscillators are overbought.
Now let’s look closer at the charts and data and see where this market is headed next.
On the Charts
All the major equity indexes closed higher Wednesday with positive internals and higher volume on the NYSE and Nasdaq. All closed near their intraday highs, leaving all the charts near-term bullish and above their 50-day moving averages.
Resistance levels were violated to the upside on the S&P 500, Nasdaq Composite, Nasdaq 100, Dow Jones Transports, Russell 2000 (see above) and Value Line Arithmetic Index.
Also, the ascending triangle patterns on the Nasdaq Composite and Nasdaq 100 discussed here recently saw positive resolutions of their patterns.
Cumulative market breadth stayed bullish for the All Exchange, NYSE and Nasdaq and above their 50 DMAs.
All stochastic levels ae overbought but have yet to generate bearish crossover signals.
Regarding the Data
The McClellan Overbought/Oversold Oscillators are on a cautious signal as all are overbought (All Exchange: +86.24 NYSE: +91.62 Nasdaq: +84.19). In our experience, while they are overbought, it is usually the second time they are overbought after reversing a protracted downtrend. Current levels are overbought for the first time.
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) is neutral at 49%.
The Open Insider Buy/Sell Ratio slipped to 67.6, also stayed neutral.
The detrended Rydex Ratio (contrarian indicator) dropped to -1.45 but remains bullish as the leveraged ETF traders have been covering their shorts but are still leveraged short.
This week’s AAII Bear/Bull Ratio (contrarian indicator) saw the crowd staying very fearful, at 2.11 and very bullish.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a rise in bulls and dip in bears but is still very bullish at 36.6/32.4. Three times in the past decade, such readings have marked market lows, most followed by notable rallies.
S&P Valuation and Treasury Yields
The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 dipped to $237.83 per share. As such, the S&P’s forward P/E multiple is 16.7x as the spread of its discount to the “rule of 20” ballpark fair value narrowed at 17.0x.
The S&P’s forward earnings yield is 6.0%.
The 10-Year Treasury yield closed higher at 3.04%. We view support as 2.8% and resistance at 3.15%.
Near-Term Market Outlook
The recent rally has improved the index charts and market breadth notably. As such, we remain encouraged for further improvement with the caveat that current overbought conditions may presage some slowing of progress within a period of some consolidation.