AAII Ratio Moderates
Opinion: The indexes closed mixed yesterday with positive internals on the NYSE while the NASDAQ was mixed. Volumes rose from the prior session on the NYSE as NASDAQ volumes dipped. Two new closing highs were achieved on the charts, leaving all of the near term trends intact. The data remains primarily neutral. As such and in spite of our persistent concerns regarding valuation and high margin levels, the near term uptrends of the indexes should be respected until violated with the caveat that risk, in our view, remains high.
- On the charts, the indexes closed mixed yesterday. The SPX (page 2) and DJI (Page 2) saw fractional losses with the DJT (page 3) closing lower in the day. The rest of the indexes advanced with the RTY (Page 4) and VALUA (page 5) making new closing highs. The short term trends are positive across the board with the exception of the COMPQX that is near term neutral until resistance is violated. The Cumulative advance/decline lines for all of the exchanges remain positive and above their 50 DMAs. All of the stochastic levels are overbought but have not given bearish crossover signals as yet.
- The data continues to send a rather neutral picture. Only the 21 day NYSE McClellan OB/OS Oscillator is mildly overbought as the rest are neutral (All Exchange:+32.37/+36.47 NYSE:+41.57/+51.92 NASDAQ:+23.23/+23.03). The Equity Put/Call Ratio is a neutral 0.63 as is the Open Insider Buy/Sell Ratio at 38.8. The Total and OEX Put/Call Ratios are counterbalancing with a bullish Total P/C of 0.99 and a bearish OEX P/C at 1.93. We would note the new AAII Bear/Bull Ratio (contrary indicator) has moderated to a neutral 28.0/28.67, taking some stress off of the psychology indicators.
- 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 use of margin is up 20.7% y/y. Forward valuation of the SPX is at an 18.4 multiple, 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 $134.01 leave a 5.53 forward earnings yield on a 18.4 forward multiple, over 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