NYSE Internals Negative
Opinion: The indexes closed mixed Friday with negative internals on the NYSE and positive internals on the NASDAQ. Volumes declined on both exchanges from the prior session. Several new closing highs were achieved on the charts that remain positive. However, the data remains a mixed bag. Nonetheless, there is not yet enough evidence being presented to warrant a shift in our near term “neutral/positive” outlook for the major equity indexes although forward valuation of the SPX and investment advisor sentiment both suggest an elevated level of risk is present.
· On the charts, the indexes closed mixed Friday with the SPX (page 2), DJI (page 2), COMPQX (page 3) and MID (page 4) all making new closing highs. The DJT also advanced but was unable to make a new high while the RTY (page 4) and VALUA (page 5) declined on the day. All of the short term uptrends remain intact. We would note, however, that the advances on the large cap indexes occurred with negative internals. While this narrowing of breadth is not conclusive of more concern of weakening internals, it is worthy of note, in our opinion.
· The data is mixed with most of the McClellan OB/OS Oscillators neutral (All Exchange:+24.13/+49.42 NYSE:+3.11/+67.09 NASDAQ:+36.1/+46.62). Only the NSYE 21 day is overbought. The Equity Put/Call Ratio is a neutral 0.59 along with a 9.9 Gambill Insider Buy/Sell Ratio. On the bullish side, the pros are very heavy calls via the OEX Put/Call Ratio at 0.44 as they continue to expect further near term strength.
· Yet in spite of the charts and data, we continue to be of the opinion that a respectable degree of risk exists at this point in time as the forward valuation of the SPX based on forward 12 month IBES earnings estimates is at a 12 year high of a 17.8 multiple while investment advisors continue to display a disregard for any market concern as seen by the Investors Intelligence Bear Bull Ratio (contrary indicator) at 17.6/61.8. Such high valuation combined with complacency has, in the past, resulted in sudden and sharp market declines when a catalyst is triggered.
· In conclusion, although we do have some real concerns for the markets as noted above, the charts and data have yet to suggest a shift in our near term “neutral/positive” outlook for the major indexes should be entertained.
· Forward 12 month earnings estimates for the SPX from IBES of $132.33 leave a 5.63 forward earnings yield on a 17.8 forward multiple, a decade high.
SPX: 2,277/NA
DJI: 19,946/NA
COMPQX; 5,576/NA
DJT: 9,141/NA
MID: 1,697/NA
RTY: 1,377/1,357
VALUA: 5,387/NA