NYSE: Indexes Rise On Negative Internals

Data Mixed

Opinion: Most of the indexes closed higher yesterday with the exceptions of the MID and VALUA. Several new closing highs were achieved again but this time they occurred on negative internals as volumes rose on the NYSE and NASDAQ from the prior session. The data remains mostly neutral with the exception of the psychology data suggesting overly bullish sentiment. Consensus forward 12 month earnings estimates for the SPX via Bloomberg rose again to $149.42. As such, we remain of the opinion that the current near term trends of the indexes should still be respected until proven otherwise, although yesterday’s action and sentiment suggest further progress mat be more difficult over the near term.

• On the charts, the MID (page 4) and VALUA (page 5) closed lower yesterday as the rest of the indexes advanced to new closing highs (see charts). However, we would note that the index strength was undermined by the fact that internal breadth was negative on both the NYSE and NASDAQ as well as up/down volume while overall volume increased from the prior session. It is suggestive of a day of institutional distribution, in our view. With that said, all of the near term uptrends remain intact as do the cumulative advance/decline lines. So, yesterday’s internal weakness did not impact the current positive status of the charts.

• The data is mostly neutral with a few outliers. Only the 21 day level of the McClellan OB/OS Oscillators is overbought as the rest are neutral (All Exchange:+20.65/+43.43 NYSE:+18.09/+57.53 NASDAQ:+22.48/+30.56). The Total and Equity Put/Call Ratios are neutral at 0.81 and 0.6 respectively while the OEX P/C is a mildly bullish 0.95. The OpenInsider Buy/Sell Ratio remains neutral at 29.6 but does show a pickup in inside selling over the past few sessions. The primary negative signals are coming from the sentiment indicators of the AAII and Investors Intelligence Bear/Bull Ratios (contrary indicators) showing overly bullish sentiment levels as discussed in yesterday’s report.

• In conclusion, while the charts suggest the current uptrends of the indexes should continue to be respected, yesterday’s action combined with sentiment imply further progress may be more difficult over the near term, in our opinion.

• Forward 12 month earnings estimates for the SPX from Bloomberg were raised to $149.42 leaving a 5.43 forward earnings yield on a 18.4 forward multiple.

SPX: 2,671/NA

DJI: 24,678/NA

COMPQX; 6,890/NA

NDX: 6,400/NA

DJT: 10,582/NA

MID: 1,893/NA

RTY: 1,525/NA

VALUA: 6,072/NA