Data Mostly Neutral
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ internals were mixed. Volumes rose from the prior session on both exchanges. Two new closing highs were achieved on the charts while one of the indexes weakened. The data remains largely neutral leaving us with the opinion that in spite of our concerns regarding valuation and high margin exposure, the near term trends of the indexes should be respected until proven otherwise.
- On the charts, the SPX (page 2) and COMPQX (page 3) closed higher on the day as the rest posted losses. Internals were negative on the NYSE while the NASDAQ A/D was negative but up/down volumes were positive. Two new closing highs were achieved by the SPX and COMPQX with the COMPQX closing above near term resistance and turning its near term trend to positive from neutral. On the other hand, the DJT (page 3) gave two warning signs as it closed below its near term uptrend line while flashing a bearish stochastic crossover signal, turning the DJT trend from positive to neutral. The balance of the indexes remain in short term uptrends with positive cumulative advance/decline lines on the All Exchange, NYSE and NASDAQ.
- The data remains mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:+19.45/+33.6 NYSE:+28.41/+46.4 NASDAQ:+10.55/+22.84). Bothe the Equity Put/Call Ratio (0.62) and Open Insider Buy/Sell Ratio (31.1) are neutral as well. The Total and OEX Put/Call Ratios are canceling each other out with a mildly bullish 0.87 Total P/C and 2.96 OEX P/C as the pros are now heavily invested in puts.
- 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). These issues suggest market vulnerability should there be a shift in trend. However, said shifts have yet to appear on the charts.
- 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
NASDAQ: 6,188/NA
DJT: 9,566/9,727
MID: 1,746/1,772
RTY: 1,413/NA
VALUA: 5,492/NA