Enough evidence has been generated to alter our near-term outlook for the major equity indices to “positive” from “neutral/positive.”
The charts have now seen several resistance levels violated, turning neutral near-term trends positive, while some 50-day moving averages have been reclaimed. Meanwhile, data, while still largely neutral, is showing some improvement in the psychology sector.
Let’s look deeper into both the charts and data.
On the charts, all of the indices closed higher Monday with positive internals on higher trading volumes. All closed near the upper end of their intraday ranges.
Improvements were seen with the S&P 500 (see above), Nasdaq 100 (see below), Dow Transports and Value Line Arithmetic Index all closing above resistance. The Transports and S&P MidCap 400 closed back above their 50-day moving averages as well.
Thus, we now find the bulk of the indices in positive short-term trends with the exceptions of the Dow Jones Industrials and MidCap 400, which remain neutral.
All of the cumulative advance/decline lines remain positive and above their 50-day moving averages.
One moderating factor, as a result of recent strength, is that all of the stochastic levels are now in overbought territory. However, they may remain that way for extended periods. As such, they are not actionable until bearish crossovers are generated.
The data is largely neutral, including all of the McClellan OB/OS Oscillators (All Exchange:+44.16/+0.74 NYSE:+48.81/+12.0 NASDAQ:+39.36/-8.97). The Equity (0.64) and OEX (1.25) put/call ratios are neutral as well as is the OpenInsider Buy/Sell Ratio at 44.4.
We would draw attention to the improvement in the AAII Bear/Bull Ratio (contrary indicator) from the psychology basket as the crowd has turned negative on the markets with bears outnumbering bulls 37.67/29.33.
Forward valuation of the S&P 500 based on current forward 12-month consensus earnings estimates is at a 16.6x P/E multiple versus the “rule of 20” implied fair value at a 17.2x multiple.