VIX At Possible Near Term Low
Opinion: The indexes closed higher yesterday with positive internals on both the NYSE and NASDAQ as volumes rose notably from the prior session. Several new closing highs were achieved, leaving all of the near term trends intact while the VIX may have put in a short term low. The data remains largely neutral. As such, the charts continue to imply the near term trends should be respected. However, we remain of the opinion that market risk is quite high given the combination of historically high valuation and margin debt levels.
- On the charts, all of the indexes closed higher yesterday with positive internals on strong trading volumes. New closing highs were achieved on the SPX (page 2), COMPQX (page 3), MID (page 4), RTY (page 4) and VALUA (page 5). All of the indexes remain in their short term uptrends with the exception of the DJT (page 3) that is in a near term downtrend. Cumulative advance/decline lines for the NYSE, NASDAQ and All Exchange remain positive and above their 50 DMAs. So there is little to argue with regarding the near term chart trends. Yet we would note the VIX chart (page 9) may have put in a “hammer bottom” yesterday implying a possible uptick in market volatility. “Hammer bottoms” appear at the end of a downtrend when a stock or index opens, trades notably lower and then closes back at or near its opening levels. The implication is one of an exhaustion of selling pressure.
- The data remains largely neutral. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day staying overbought (All Exchange:+18.62/+40.65 NYSE:+19.78/+60.514 NASDAQ:+20.96/+24.99). The Total (0.8) and Equity (0.61) Put/Call Ratios are neutral as is the Open Insider Buy/Sell Ratio (51.7). The OEX Put/Call Ratio is a mildly bullish 0.93).
- In conclusion, while there is nothing particularly onerous on the charts or in the data to imply negativity to a significant degree, thus suggesting the near term trends of the charts should continue to be respected, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is at a 15 year high with an 18.5 forward multiple and margin debt is at historically extreme levels and up 20.7% y/y at over 1.3X GDP, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $134.01 leave a 5.53 forward earnings yield on a 18.5 forward multiple, over a decade high.
SPX: 2,429/NA
DJI: 21,305/NA
NASDAQ: 6,305/NA
DJT: 9,428/9,727
Mid: 1,758/NA
RTY: 1,426/NA
VALUA: 5,565/NA