Data Remains Neutral
The indexes closed higher Friday. Unfortunately, our market internal data regarding market breadth and up/down volume is unavailable this morning. Nonetheless, with that said, several chart improvements were registered with new closing highs as well as one finally violating near term resistance. The data remains neutral across the board. So while the SPX is just shy of fair valuation, we have yet to see sufficient evidence to warrant a change in or near term “neutral/positive” outlook for the major equity indexes at this time.
On the charts, all of the indexes closed higher Friday.
- Of note, the SPX (page 2), COMPQX (page 3) and NDX (page 3) made new closing highs again while the RTY (page 5) managed to close marginally above its near term resistance level, thus turning its short term trend to positive from neutral.
- So all of the near term trends are up with the exceptions of the MID (page 4), VALUA (page 5) and DJI (page 3) being neutral.
- We would note the DJI did flash a “bearish stochastic crossover signal” but is not yet actionable, in our opinion.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs.
The data remains neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-4.91 NYSE:-14.98 NASDAQ:+5.16).
- The Open Insider Buy/Sell Ratio remains neutral at 59.5 showing a slight uptick in insider buying interest.
- The % of SPX stocks trading above their 50 DMAs is neutral with a 70.5% reading.
- Crowd sentiment is relatively benign. The detrened Rydex Ratio (0.69) and new AAII Bear/Bull Ratio (23.0/37.33) remain neutral. However, as recently noted, the Investors Intelligence Bear/Bull Ratio (contrary indicator) shows investment advisors becoming slightly overly bullish at 19.2/54.8 now that some indexes are posting new highs.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX now stands at $171.68, leaving the forward p/e at a 17.1 multiple while the “rule of twenty” finds fair value at 17.5. As such, the SPX is approaching fair value by this metric. The earnings yield stands at 5.84%.
In conclusion, we are maintaining our near term market outlook at “neutral/positive”. However, as we approach fair value and advisors are getting a bit excessive in their optimism, the combination is raising some concerns. Some of this can be seen with high forward PEG issuers not being suffered lightly if they blink on their earnings reports.