Charts and Data Little Changed
Opinion: Most of the indexes closed higher yesterday. However, internals were negative on the NYSE as volumes rose from the prior session. NASDAQ internals were positive but volumes declined. One minor warning signal was generated on the charts but no technical signals of real import were registered, leaving their short term trends unchanged. The data continues to shed little light regarding near term probabilities. Nonetheless, as stated over our past few reports, we continue to believe near term caution is warranted as valuation remains extended, investment advisors are complacent and the use of margin to achieve performance has expanded notably. The market’s shock absorbers, in our view, are in lousy shape.
- On the charts, the MID (page 4) and VALUA (page 5) closed lower yesterday as the rest posted minor gains. Said gains on the NYSE occurred with negative internals on higher trading volume, a less than healthy combination. The VALUA did flash a “bearish stochastic crossover” signal as the MID did in the prior session. Yet no violations of support have occurred that would make them actionable. The short term trends of the MID, RTY (page 4) and VALUA remain neutral while the rest are positive.
- The data remains mixed and uninstructive. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-3.42/+20.18 NYSE:-8.48/+34.05 NASDAQ:+0.11/+7.38) as are the Equity Put/Call Ratio (0.58) and Open Insider Buy/Sell Ratio (36.9). The OEX Put/Call Ratio finds the pros having jumped the fence on their prior bearish near term view to being long calls at 0.88. As such, the data scales are currently too evenly balanced to offer any valuable insight, in our opinion.
- So in spite of the benign nature of the charts and data, we remain “negative” in our near term outlook as we perceive a high level of risk being present due to three important factors typically seen near market tops. Valuation is extended with the forward p/e of the SPX back at a decade high with an 18.2 forward multiple, investment advisors showing a high degree of complacency via the 19.2/50.0 Investors Intelligence Bear/Bull Ratio (contrary indicator) and margin debt expanding by over 20% on a y/y basis. The combinations of these three factors portend a very rough road ahead should the markets experience a rise in concern from its current level of enthusiasm.
- Forward 12 month earnings estimates for the SPX from IBES of $134.56 leave a 5.63 forward earnings yield on a 18.2 forward multiple, near a decade high.
SPX: 2,400/NA
DJI: 20,888/NA
COMPQX; 6,121/NA
DJT: 9,160/9,412
MID: 1,715/1,754
RTY: 1,385/1,412
VALUA: 5,368/5,537