Valuation At New Peak
Opinion: The indexes closed mostly lower Friday with positive internals on the NYSE while NASDAQ internals were negative. Volumes decline from the prior session on both exchanges. One new closing high was achieved on the charts with all of the near term trends positive. The data is mostly neutral but valuation is now at a new peak. So while valuation continues to be a concern, the short term trends combined with some improvement in breadth over the past week suggest to us the near term trends of the indexes should continue to be respected until proven otherwise.
- The indexes closed mostly lower Friday with mixed internals on the exchanges. Volumes declined from the prior session. The one outlier was the DJT (page 4) closing higher while making a new closing high. Over the past week, the indexes managed to improve to the point that all are now in short term uptrends. As well, breadth has improved with the All Exchange and NYSE positive and above their 50 DMAs. The NASDAQ, while still below its 50 DMA, has improved from negative to neutral.
- The data is mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:+0.33/+22.36 NYSE:-0.96/+41.19 NASDAQ:+0.23/+7.21). The Total and Equity Put/Call Ratios are both neutral at 0.8 and 0.56 respectively with the OpenInsider Buy/Sell Ratio (41.1) and AAII Bear/Bull Ratio (31.0/38.67) neutral as well. Two caution signals are registered with the OEX Put/Call Ratio a very bearish 1.84 as pros are weighted in puts while the forward p/e for the SPX based on forward 12 month earnings estimates via Bloomberg has hit a new peak level at a 19.1 forward multiple.
- In conclusion, while valuation is some cause for concern, the positive near term trends on the chats combined with some recent improvement in breadth suggest said trends should continue to be respected until proven otherwise, in our opinion.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.31 forward earnings yield on an 19.1 forward multiple.
SPX: 2,626/NA
DJI: 24,318/NA
COMPQX: 6,826/NA
NDX: 6,333/NA
DJT: 10,340/NA
MID: 1,883/NA
RTY: 1,508/NA
VALUA: 5,967/NA