Valuation Back Near Peak LevelsOpinion
The indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes rose on the NYSE from the prior session while NASDAQ volumes declined. Yet again, we saw several new closing highs being registered on the charts as breadth has continued to improve. The data is largely neutral with a few mixed signals. However, the recent rally has pushed valuation of the SPX back near its prior peak level that may result in some tempering of the recent pace. Nonetheless, given the state of the charts and data, we remain of the opinion that the current positive trends of the indexes should be respected until proven otherwise.
- On the charts, all of the indexes closed higher with positive internals. New closing highs were registered on the SPX (page 2), DJI (page 2), DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5). The DJT’s rally has been particularly strong having gained almost 700 points in 3 days. In contrast, the COMPQX (page 3) and NDX (page 3) were not able to make new closing highs. Their action last Wednesday raised the concern of possible sector rotation as the large cap technology names that were the prior leaders began showing some signs of fatigue. Yet their charts remain in uptrends while support remains intact. Further deterioration in those two indexes would be required, in our opinion, to become more cautionary. Breath remains positive on the All Exchange, NYSE and NASDAQ as all are in uptrends and above their 50 DMAs.
- The data is mostly neutral with a few mixed messages. All of the McClellan OB/OS Oscillators remain neutral in spite of the market’s gains (All exchange:+30.16/+22.42 NYSE:+32.26/+31.95 NASDAQ:+30.1/+16.47). The Open Insider Buy/Sell Ratio is also neutral at 32.3. The Equity and Total Put/Call Ratios are counterbalancing at 0.55 and 0.85 respectively while the OEX Put/Call Ratio is a bullish 0.65.
- One issue could be a potential drag on further progress, in our opinion, as the recent market gains have pushed the forward valuation of the SPX based on forward 12 month earnings estimates back up to an 18.8 forward multiple. It’s recent peak was 18.9. Yet we remain of the opinion the current positive chart trends should still be respected unless the evidence begins to suggest otherwise.
- Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.46 forward earnings yield on a 18.8 forward multiple.
- SPX: 2,589/NA
- DJI: 23,427/NA
- Nasdaq: 6,759/NA
- NDX: 6,292/NA
- DJT: 9,978/NA
- MID: 1,825/NA
- Russell: 1,500/NA
- VALUA: 5,837/NA