Data Remains Mixed
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ internals were positive. Volumes declined from the prior session on both exchanges. Mixed signals were generated on the charts affecting some of the trends while the data remains mixed. Although it is too early to suggest the charts are breaking, there is a slight impression of technical weakening beginning to appear, in our opinion. Nonetheless, said trends should continue to be respected with the caveat that we believe risk is quite high at present given the extended valuation of the SPX in combination with excessive employment of margin.
- On the charts, the indexes closed mixed yesterday. The COMPQX (page 3) made a new closing high as the MID (page 4) and RTY (page 4) posted minor gains. The rest of the indexes closed lower with the DJI closing below its long term uptrend line from last November as well as flashing a bearish stochastic crossover signal. The DJT closed on support while the VALUA closed below its short term uptrend line turning its near term trend to neutral from positive. So we now find the bulk of the indexes remaining in near term uptrends with the exception of the DJT in a short term downtrend and the VALUA neutral. All of the cumulative advance/decline lines are positive and above their 50 DMAs.
- The data is mixed. All of the McClellan OB/OS Oscillators are neutral with the exception of the 21 day NYSE staying overbought (All Exchange:+10.24/+45.08 NYSE:+9.25/+64.65 NASDAQ:+13.36/+29.55). The Total and Equity Put/Call Ratios are also neutral (0.82/0.68) as is the Open Insider Sentiment Index at 42.0. However, the OEX Put/Call Ratio is mildly bearish at 1.44 as the pros have begun buying puts. As well, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) finds advisors getting too bullish again at 16.7/57.8.
- In conclusion, while there is nothing particularly onerous on the charts or in the data to imply negativity to a significant degree, thus suggesting the near term trends of the charts should continue to be respected, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is near a 15 year high with an 18.4 forward multiple and margin debt is at historically extreme levels as noted on the chart on page 9, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.
- Forward 12 month earnings estimates for the SPX from IBES of $134.01 leave a 5.53 forward earnings yield on a 18.4 forward multiple, over a decade high.
SPX: 2,429/NA
DJI: 21,305/NA
NASDAQ: 6,305/NA
DJT: 9,428/9,727
MID: 1,746/NA
RTY: 1,426/NA
VALUA: 5,565/NA