Charts Weaken As Data Turns Positive

SPX Forward 12-Month Estimates Rise

Opinion

All of the indexes closed broadly lower yesterday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows with some of the charts registering negative technical signals as others remain unchanged. The declines moved the data into mostly positive territory, with one exception, while for ward 12 month estimates from IBES were raised. So while the data is encouraging, the cracks on some of the charts are forcing us to shift our near term outlook from “neutral/positive” to “neutral”. And in spite of the lift in SPX earnings estimates, valuation remains high enough to keep our intermediate term outlook “neutral” as well.

• On the charts, all of the indexes declined with some technical breaks registered. The SPX (page 2) closed below support as well as its intermediate term uptrend line while the MID (page 4) closed below support as well, along with the RUT (page 4). The COMPQX (page 3) closed below its short term uptrend line but held support while the DJI (page 2) and VALUA (page 5) tested support and held. We would also note the action moved the All Exchange, NYSE and NASDAQ advance/decline lines below their 50 DMAs and into short term downtrends.

• Some solace is coming from the data as the negative action forced all of the 1 day McClellan OB/OS Oscillators into oversold territory (All Exchange:-69.4 NYSE:-79.31 NASDAQ:-59.91). The 21 day levels remain neutral. The WST Ratio/Composite is bullish at 25.0/84.30 along with the Total and Equity Put/Call Ratios (contrary indicators) as the nervous crowd is long puts at 1.12 and 0.75 respectively. The OEX Put/Call Ratio (smart money), however, remains bearish with the pros long puts at 2.01.

• We would also note that IBES has lifted forward 12 month consensus earnings for the SPX from $127.74 to $129.10, taking some slight pressure off of valuation.

• In conclusion, in spite of the positive data forecast, the charts and advance/decline lines took on enough water yesterday to turn our short term outlook to “neutral” from “neutral/positive”. Forward valuation remains a concern for the intermediate term which remains “neutral”.

• Forward 12-month earnings estimates for the SPX from IBES of $129.10 leave a 6.04 forward earnings yield on a 16.6 forward multiple.
• SPX: 2,120/2,171
• DJI: 18,078/18,515
• NASDAQ: 5,221/5,329
• DJT: 7,954/8,144
• MID: 1,511/1,556
• Russell: 1,227/1,250
• VALUA: 4,848/5,002