Valuation Slightly Extended
The indexes closed mostly lower Friday with two exceptions as internals were positive on the NYSE while NASDAQ internals were negative. Trading volumes swelled on quarterly options expiration. One index made a new closing high. The data is largely neutral but now finds valuation a bit extended. Yet given the state of the charts and data, we are inclined to maintain our near-term “neutral’/positive” outlook for the major equity indexes.
- On the charts, only the DJI (page 2) and DJT (page 4) closed higher Friday with the rest if the indexes posting losses. The DJI managed to make another new closing high. Trading volumes swelled due to triple witching with positive internals on the NSE and negative internals on the NASDAQ. There was some improvement in overall breadth as the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are now positive and above their 50 DMAs. However, there was no change in the short term trends with the SPX (page 2), DJI and DJT positive with the rest neutral.
- The data remains largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-2.41/-3.71 NYSE:-5.17/+0.12 NASDAQ:-0.8/-5.94). The Equity P/Call Ratio (0.57), OEX P/C (1.1) and Open Insider Buy/Sell Ratio (51.9) are neutral as well. The Total Put/Call Ratio (contrary indicator) is a bullish 0.98. Valuation remians a bit stretched with consensus forward 12 month earnings estimates for the SPX at $168.77, leaving the forward 12 month p/e for the SPX at 17.4 versus the “rule of 20” implied fair value of a 16.9 multiple. The “earnings yield” stands at 5.76%. Third quarter earnings are due shortly and may have some impact should they beat or miss consensus estimates.
- In conclusion, as there is no change on the charts regarding trend while improved breadth is being countered by somewhat extended valuation, we are maintaining our near-term “neutral/positive” outlook for the major equity indexes.
- SPX: 2,889/NA
- DJI: 26,127/NA
- NASDAQ: 7,891/8,108
- NDX: 7,400/7,579
- DJT: 11,396/11,601
- MID: 2,020/2,053
- Russell: 1,672/1,726
- VALUA: 6,514/6,635