SPX Earnings Estimates LiftOpinion
Since our last comment over a week ago, the markets have seen enough improvement on both a chart and data basis to alter our near term outlook from “neutral/negative” to “neutral/positive”. Several resistance levels and short term downtrends on the charts were violated while the data is largely neutral in nature.
- On the charts, virtually all of the short term downtrends on the indexes were violated to the upside along with several resistance levels being broken. Some 50 DMAs were also surpassed. The net result is all but the DJT (page 4), that remains in a neutral trend, are now in short term uptrends. Most of the stochastic levels are neutral with the exception of the VALUA (page 5) slightly overbought. We would also note The MID (page 4) and VALUA made new closing highs. Also, all of the cumulative advance/decline lines for the indexes turned positive and back above their 50 DMAs. On the other hand, the VIX has drifted back into the 12.00 range after having spiked to 20, suggesting we may see some volatility reenter the markets post the recent gains.
- The data is largely neutral including all of the McClellan 1-day OB/OS Oscillators (All Exchange:+28.48/53.15 NYSE:+42.48/+63.61 NASDAQ:+19.9/+46.27). The OEX Put/Call Ratio (1.06) and OpenIsider Buy/Sell Ratio (53.9) are neutral as is the detrended Rydex Ratio (contrary indicator) dropping significantly to 0.68 from its prior bearish levels. The AAII Bear/bull Ratio is dead even at 33.33/33.0 with the only bearish signal coming from the Equity P/C at 0.53. Also of importance is the sizable increase in consensus forward 12-month earnings estimates for the SPX lifting from $163.57 to $167.41, leaving the forward 12-month p/e for the SPX at 16.6 versus the “rule of 20” implied fair value at a 17.1 multiple. We don’t know when said estimates were lifted, but they may have been the catalyst for the recent strength.
- In conclusion, the improvement on the charts combined with the data and notable lift in earnings estimates for the SPX is sufficient to turn our near term outlook from “neutral/negative to “neutral/positive”
- SPX: 2,727/2,788
- DJI: 24,300/25,163
- NASDAQ: 7,597/7,797
- NDX: 7,100/7,306
- DJT: 10,180/10,771
- MID: 1,968/NA
- Russell: 1,654/1,712
- VALUA: 6,365/NA