First Call Lowers Forward 12 Month SPX Earnings Estimates
Opinion
Yesterday’s activity suggests the major equity indexes may be able to show a bit more upside strength over the very near term. The charts managed to close at the highs of the day after approaching near term support levels and respective up trend lines suggesting a possible successful test of said levels on positive volume and breadth. The data continues to send conflicting signals but the 1 day McClellan OB/OS Oscillators remain neutral implying some room to the upside short term.
· Looking at the charts, results were mixed but mostly positive yesterday as all but the DJI (page 2) closed higher on the day. Breadth and up/down volumes were positive as overall volume rose on the NYSE but declined on the NASDAQ. Worthy of note, in our opinion, is that all but the DJT (page 3) traded lower intraday to levels that came very close to testing their respective short term support levels and short term up trend lines. By the close, all of the indexes had rallied off of their lows and closed at or near their highs of the day.
· Our interpretation of such action is, over the past several days, sideways action was working off prior overbought conditions while culminating in successful tests of support and trend. As such, we would now expect some action to the up side near term post the markets’ recent pause.
· The data remains conflicted. The 1 day McClellan OB/OS Oscillators are neutral on the NYSE (-27.06) and NASDAQ (-16.2) with their 21 day levels overbought at +88.46 and +56.15 respectively. The Equity and Total Put/Call Ratios (contrary indicators) saw an increase in put buying sending bullish contrarian signals at .71 and .96. As a whole, they imply some near term strength.
· However, the WST Ratio and its Composite are bearish at 75.6 and 159.9 along with a 1.76 OEX Put/Call Ratio (smart money). The detrended Rydex Ratio (contrary indicator) has the leveraged ETF traders floating on clouds at an overly optimistic 1.94 as insiders remain sellers with a 6% Gambill Insider Buy/Sell Ratio. As such, the data is at a bit of a Mexican standoff.
· We would also note forward 12 month IBES earnings estimates for the SPX have dropped from $121.60 to $119.90.
· For the longer term, we remain bullish on equities as they remain undervalued with a 6.42% forward earnings yield for the SPX based on 12-month IBES forward earnings estimates of $121.60 versus the 10-Year Treasury yield of 2.73%.
- SPX: 1,8350/?
- DJI: 16,090/16,493
- NASDAQ: 4,242/?
- DJT: 7,350/?
- MID: 1,355/?
- RUT: 1,169/?