Data Neutral
Opinion: Most of the indexes closed higher yesterday although internals were negative on both the NYSE and NASDAQ as volumes declined from the prior session. No major technical events occurred on the charts, leaving their near term trends a mix of neutral and negative. The data remains largely neutral as well, giving no strong indication of near term direction. As such, we are maintaining our near term “neutral” outlook for the major equity indexes in place.
- On the charts, most of the indexes closed higher yesterday with the exceptions of the RTY (page 5) and VALUA (page 5). However, the gains on the other indexes occurred on negative internal breadth and up/down volume. No support or resistance levels were violated, leaving the SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 3) in short term downtrends. The rest of the indexes ae in sideways consolidation patterns, in our opinion. And while the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are short term negative, they all remain above their 50 DMAs.
- The data is mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:-25.34/+10.77 NYSE:-30.63/+10.9 NASDAQ:-22.08/+14.07). The Equity and Total Put/Call Ratios are also neutral at 0.68 and 0.84 respectively as is the OpenInsider Buy/Sell Ratio (34.1). One bullish signal is coming from the OEX Put/Call Ratio as the pros have switched their prior bearish put exposure to now being long calls at 0.63. Also, while remaining neutral, the new AAII Bear/Bull Ratio (contrary indicator) at 29.0/28.0 shows bears outweighing bulls for the first time in several weeks, suggesting the “wall of worry” is being rebuilt.
- Finally, valuation is less of a concern as the forward p/e for the SPX based on 12 month forward consensus estimates stands at a 17.2 multiple. The “rule of 20” suggests fair market value can be roughly established by subtracting the 10 year treasury yield from 20, in this case yielding a 17.2 multiple as well. By this measure the markets are not overvalued.
- In conclusion, while the markets have had a bit of a rough ride lately, especially in some high visibility names, our discipline of using the charts and data suggests we maintain our near term “neutral” outlook intact at this stage.
- Forward 12 month earnings estimates for the SPX from Bloomberg are $157.61 leaving a 5.8% forward earnings yield on a 17.2 forward multiple.
SPX: 2,693/2,746
DJI: 24,304/25,307
COMPQX; 7,254/7,474
NDX: 6,745/7,009
DJT: 10,475/10,761
MID: 1,902/1,960
RTY: 1,550/1,600
VALUA: 6,105/6,251