Data Remains Largely Neutral
Opinion: All of the indexes closed higher Friday with positive internals as volumes declined from the prior session on the NYSE and NASADAQ. Several new closing highs were achieved on the charts as well as violations of near term resistance. The data remains largely neutral. As such, we continue to be of the opinion, adjusted last week that the near term trends on the indexes should be respected, although our concerns of historically high valuation, high margin debt and investment advisor complacency persist.
- On the charts, all of the indexes closed higher Friday with positive internals. Positive technical events occurred in the form of the DJI (page 2) and DJT making new closing highs while the SPX (page 2), RTY (page 4) and VALUA (page 5) closed above their near term resistance levels to make new closing highs as well. The COMPQX (page 3) closed at resistance. So we now find all of the indexes, with the exception of the COMPQX, in short term uptrends while the COMPQX remains neutral. All of the cumulative advance/decline lines are positive and above their 50 DMAs as well. A side note would be the stochastic levels for all are well into overbought territory but have not yet given bearish crossover signals. They are capable of staying in the condition for an extended period.
- The data is mostly neutral. All of the McClellan OB/OS Oscillators are neutral (All Exchange:+22.2/+19.36 NYSE:+43.58/+41.42 NASDAQ:+24.86/+13.34) as are the OEX Put/Call Ratio (1.01), Total Put/Call Ratio (0.84) and Open Insider Buy/Sell Ratio (38.2). The Equity Put/Call Ratio (contrary indicator) is the only near term negative signal being given at 0.53 as, by that measure, the crowd has gotten enthusiastic and loaded up on calls.
- In conclusion, the generally positive chart trends appear to rule, and should be respected until proven otherwise, in spite of our concerns regarding the following. The new Investors Intelligence Bear/Bull Ratio still shows investment advisors quite complacent at 18.8/52.5 while the use of margin is up 19.7% y/y. Forward valuation of the SPX is at an 18.3 multiple, at a 15 year market peak, while the U.S. stock market total valuation is now 1.3 times U.S. GDP (only seen in late 1999 and early 2007).
- Forward 12 month earnings estimates for the SPX from IBES of $133..96 leave a 5.55 forward earnings yield on a 18.3 forward multiple, near a decade high.
SPX: 2,416/NA
DJI: 21,305/NA
COMPQX; 6,070/6,308
DJT: 9,566/NA
MID: 1,746/1,772
RTY: 1,413/NA
VALUA: 5,492/NA