DJI Makes Another New Closing High
Opinion: The indexes closed higher Friday with positive internals on the NYSE while NASDAQ internals were mixed. Volumes declined from the prior session on both exchanges. The near term trends on the indexes remain mixed while the data remains mixed as well. Thus we remain of the opinion that the near term trends of the indexes should continue to be respected within what we see as a deterioration of the general structure. Risk remains high, in our view, given historically high valuation, excessive levels of margin debt as investment advisors exhibit complacency.
- On the charts, all of the indexes closed higher Friday but volumes were light and NSASDAQ internals were mixed with a positive advance/decline but negative up/down volume. The DJI (page 2) managed to make another new closing high but remains the only index in a near term uptrend. The SPX (page 2) and COMPQX are in neutral trends while the rest are short term negative. The DJT (page 3), MID (Page 4) and RTY (page 4) are below their 50 DMAs as well. The cumulative advance/decline lines for the All Exchange and NASDAQ are negative with the NYSE cumulative A/D neutral. As such, the chats are suggesting the DJI is a possible outlier, masking the possible underlying deterioration of the general market.
- The data is mixed and uninstructive. The NYSE 21 day McClellan OB/OS is overbought with the remainder neutral (All Exchange:-28.27/+15.48 NYSE:-28.56/+64.16 NASDAQ:-36.21/+11.93). The Equity, Total and OEX Put/Call Ratios are bullish at 1.0, 0.71 and 0.49 respectively while the Rydex Ratio remains a very bearish 70.1. The Open Insider Buy/Sell Ratio at 30.9 is neutral.
- In conclusion, with the charts mixed signals increasing, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is back near a 15 year high with an 18.4 forward multiple and margin debt is at historically extreme levels up 20.7% y/y and investment advisors entering levels of emotional complacency as seen by the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.5/60.2, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $134.01 leave a 5.53 forward earnings yield on a 18.4 forward multiple, near a decade high.
SPX: 2,429/NA
DJI: 21,640/NA
COMPQX; 6,305/NA
DJT: 9,072/9,428
MID: 1,747/1,758
RTY: 1,400/1,433
VALUA: 5,539/5,609