Forward 12 Month SPX Earnings Estimates Slightly Decline
Opinion
Yesterday’s action ended with mixed results for the indexes while the DJT did the opposite of our expectations by making a new closing all-time high. So, while the charts remain intact within their current short term uptrends, some of the data continues to warn that investors have become overly confident while valuations appear to be stretched suggesting a heightened level of near term risk remains.
- On the charts, The SPX and DJI (page 2) closed lower on the day with negative NYSE internals. However, the DJT (page 3) did the opposite of our expectations from the bearish stochastic signal by closing above resistance and making a new all-time closing high on good volume. The COMPQX (page 3) also joined the DJT by making a new 14 year closing high on better volume and positive internals. The RUT (page 4) closed at resistance with the MID (page 4) testing resistance on an intraday basis. The net overall result is the current short term uptrends remain largely intact.
- What continues to bother us are a number of data points we find difficult to ignore. While the NYSE 1 day McClellan OB/OS Oscillator is a neutral +44.84, its 21 day level is very overbought at +98.85. Over the past 12 years, any time the NYSE 21 day has approached or surpassed the +100 level, the markets have seen a correction within the next several trading days. With both of the NASDAQ OB/OS nudging back to overbought (+52.22/+57.75) there is little if any downside cushion available, in our opinion. The Rydex Ratio (contrary indicator) is back at 58.7 and near levels of excessive bullishness on the part of the leveraged ETF traders just prior to the last market drop. In contrast, the pros measured by the OEX Put/Call Ratio remain nervous and long puts at 1.65.
- We would also note the IBES forward 12 month earnings estimates for the SPX have dipped, although quite modestly, to $127.38 from $127.44 leaving the forward P/E at a 10 year high of 15.7X.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.36% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.38 versus the 10 Year Treasury yield of 2.42%.
- SPX: 1,979/?
- DJI: 16,980/17,140
- NASDAQ: 4,450/?
- DJT: 8,294/???
- MID: 1,420/1,444
- RUT: 1,160/1,180