Neutral/Positive

SPX Forward 12 Month Earnings Estimates Rise

Opinion

All of the indexes closed higher yesterday on what we would consider to be important short term intraday reversals. Volumes rose on both exchanges as significant declines were erased with the indexes closing higher on the day. Internals were positive on the NYSE but negative on the NASDAQ. A number of short term positive signals were generated on the charts while some of the data continues to send a somewhat bullish short term message. As well, the IBES forward 12 month earnings estimates for the SPX have been raised. As such, in spite of the negative futures this morning, we are now short term neutral/positive for the indexes but remain cautious for the intermediate term.

• On the charts, positive technical signals were given in the following fashion. The SPX (page 2), DJI (page 2) and MID (page 4) all managed to close above their short term downtrend lines implying a change from the recent negative trend. They all saw bullish stochastic crossovers as well.

• The COMPQX (page 3) also saw a bullish stochastic crossover while forming a “hammer” candle suggestive of a washout of the sellers. It was, however, unable to close above its short term downtrend line. We also believe the RUT (page 4) formed a “hammer” candle as well.

• The DJT (page 3) has yet to generate signals suggesting a reversal beyond yesterday’s intraday recovery. So, we suspect the charts are attempting some form of neutral to positive near term performance.

• The data has a few positive signals as well. While most of the McClellan OB/OS Oscillators are neutral, the NASDAQ 1 day is now oversold at -54.18. The Put/Call Ratios continue to have bullish implications as the crowd remains very long puts and quite nervous with a 1.24 Total and .78 Equity Put/Call Ratio (contrary indicators). The pros measured by the OEX Put/Call Ratio remain mildly bullish at .84. We would also note that the Rydex Ratio (contrary indicator), although still elevated, has seen a decline in bullish sentiment on the part of the leveraged ETF traders to 58.8, dropping from very bearish to bearish.

• Finally, IBES has raised its forward 12 month forward earnings estimates for the SPX from $125.04 to $126.21 that may offer some fundamental relief.

• For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.06% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.21 versus the 10-year Treasury yield of 2.23%.
• S&P 500: 2,053/2,091
• DJI: 17,586/17,890
• NASDAQ; 4,935/5,049
• Dow Jones Transportation: 7,987/8,306
• S&P Midcap 400: 1,496/1,527
• Russell 2000: 1,242/1,273