Data Turns BullishOpinion
All of the indexes closed lower Monday with negative internals on both the NYSE and NASDAQ as NYSE volumes rose from the prior session while NASDAQ volumes declined. Several support levels were violated on the charts leaving all of the near term downtrends intact. As such, the charts remain negative. However, we are inclined to keep our near term outlook “neutral” given some counterbalancing evidence from the data and valuation.
- On the charts, all of the indexes closed lower yesterday with broadly negative internals with most closing near their intraday lows. Several support levels were violated including those on the COMPQX (page 3), NDX (page 3) MID (page 4), RTY (page 5) and VALUA (page 5). The SPX (page 2) closed at the lows of the February correction and on support. Market breadth remains poor with the cumulative advance/decline lines on the All Exchange and NASDAQ remaining negative while the NYSE’s is neutral. As such, there is little positive on the charts to cause encouragement other than the oversold stochastic levels discussed last week. Yet even there, there is a lack of bullish crossover action to suggest a reversal.
- So why are we not more negative? The 1 day McClellan OB/OS Oscillators on the All Exchange and NASDAQ are oversold with the NYSE 1 day just a hair shy of being in the same condition (All Exchange:-62.53/-4.2 NYSE:-49.89/+0.99 NASDAQ:-78.53/-6.65). The 21 day levels are neutral. The put/call ratios are all bullish with the Total and Equity P/Cs (contrary indicators) showing a rise in crowd fear at 1.28 and 0.77 respectively. The OEX P/C is a very bullish 0.53 as the pros are now heavy in calls and expecting a bounce. The OpenInsider Buy/Sell Ratio remains neutral at 63.8 but is at peak levels seen over the past 2 years.
- Finally, there has been a significant hike in consensus forward 12 month earnings estimates for the SPX from Bloomberg. For the past few weeks, estimates have hovered around the $157.70 level. As of this morning, it has jumped to $161.14. That leaves a forward multiple of 16 versus the “rule of 20” implying fair value at a 17.27 multiple. It suggests the markets are now actually undervalued.
- In conclusion, while the charts are offering little hope, the other issues discussed above are, in our opinion, weighty enough to keep our near term outlook “neutral”.
Forward 12-month earnings estimates for the SPX from Bloomberg are $161.14 leaving a 6.24% forward earnings yield on a 16.0 forward multiple.