Data Remains Mostly NeutralOpinion
All of the indexes closed higher yesterday with multiple new closing highs being registered as internals were positive on stronger volumes versus the prior session. As such, all but one of the indexes are now in near term uptrends on their charts while the data remains largely neutral. As such, our near term outlook for the indexes remains “neutral/positive”. However, we are keeping our intermediate term view at “neutral” as the forward valuation of the SPX remains near historic highs.
- On the charts, all of the indexes closed higher with positive internals on reputable volume. Several chart improvements were registered as the DJI (page 2), DJT (age 3) and VALUA (page 5) all closed above resistance to new closing highs. As a result, their near term trends have now shifted from neutral to positive. The SPX (page 2), MID (page 4) and COMPQX (page 3) made new closing highs as well. Only the RTY (page 4) remains in its sideways “rectangle” pattern. We would also note the advance/decline lines for the NYSE, NASDAQ and All Exchange have turned positive from their prior neutral trends.
- There are no major warning signs coming from the data as most of it remains within neutral territory. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day that is now overbought (All Exchange: +25.53/+39.68 NYSE:+37.15/+64.86 NASDAQ:+27.77/+28.02). The Total and Equity Put/Call Ratios are neutral at 0.72 and 0.61 respectively along with the Gambill Insider Buy/Sell Ratio at 9.1. The AAII Bear/Bull Ratio has also moderated to neutral as of its 1/19 reading of 32.68/37.01. The OEX Put/Call Ratio (smart money) remains mildly bullish as the pros remain slightly long calls at 0.81.
- In conclusion, the events over the past two trading days have been quite positive for the indexes as they have largely managed to break out bullishly form their month long sideways trading patterns. With no major warning signals coming from the data at this time, we feel it appropriate to maintain our near term “neutral/positive” outlook for the major equity indexes. Regarding the intermediate term, we need to see an increase in forward earnings estimates to lower the high forward valuation of the SPX back down to more moderate levels before altering our “neutral” outlook for that timeframe.
- Forward 12-month earnings estimates for the SPX from IBES of $132.36 leave a 5.8 forward earnings yield on a 17.2 forward multiple, near a 12-year high.
- SPX: 2,237/NA
- DJI: 19,735/NA
- NASDAQ: 5,497/NA
- DJT: 9,000/NA
- MID: 1,659/NA
- Russell: 1,356/1,357
- VALUA: 5,262/NA