Data Turns NeutralOpinion
All of the indexes closed higher yesterday with positive internals as volumes rose on the NASDAQ and declined on the NYSE. The net result was a split performance as some indexes surpassed resistance while others failed to make a notable attempt. The data is evenly balanced between bullish and bearish signals, giving no directional bias. As such the near term outlook varies from index to index with the COMPQX looking higher while the rest remain neutral. Our intermediate term concerns remain unresolved regarding poor breadth, valuation and high levels of leverage.
- On the charts, all of the indexes closed higher with positive internals as the COMPQX (page 3) surpassed resistance making a new closing high. The SPX (page 2) also closed above resistance while the DJI (page 2) failed to do so but did manage to overcome its intermediate term downtrend line. All closed near their highs of the day but on lighter than prior volumes.
- In contrast, the DJT (page 3) closed near its intraday lows after a tepid attempt to challenge resistance while the MID (page 4) and RUT (page 4) closed midrange without breaking their resistance levels. All are overbought on their stochastic levels. So there appears to be a split camp in terms of index near term potential.
- The data is at opposite ends to itself. The Put/Call ratios are bullish as the crowd is long puts with a .71 Equity and .88 Total Put/Calls Ratio (contrary indicators) while the OEX Put/Call Ratio (smart money)now shows the pros long calls at .62 and expecting strength. However, the NYSE 1 day McClellan OB/OS Oscillator is more overbought at +72.92. (The rest are neutral.) Finally, the WST Ratio and its composite are on a “bear alert” signal at 87.7 and 191.3. As such, the data scales appear evenly balanced.
- In conclusion, some indexes appear to be seeing more near term strength while others remain confined in neutral patterns.
- The forward p/e for the SPX based on forward 12 month earnings estimates from First Call at 16.9X is near its decade high while leverage is up 14% y/y keeping us cautious for the intermediate term. As well, with the SPX only 6 points from a new closing high, 45% of its components remain below their 50 DMAs suggesting breadth remains poor with a few select stocks creating the index strength.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.93% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.04 versus the 10-Year Treasury yield of 2.37%.
- SPX: 2,079/2,130
- DJI: 17,793/18,120
- NASDAQ: 4,969/?
- Dow Jones Transportation: 7,987/8,306
- S&P Midcap 400: 1,499/1,527
- Russell 2000: 1,239/1,274