Short Term “Neutral/Positive” Outlook Unchanged
Opinion: All of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as both saw volumes rise from the prior session. More new closing highs were achieved leaving the charts intact. The data remains largely neutral. As such, we have yet to see enough evidence presented to alter our near term “neutral/positive” outlook for the major equity indexes in spite of our real concerns regarding valuation and investment advisor complacency.
On the charts, all of the indexes closed higher with only the DJT (page 3) unable to achieve a new closing high. Internals were positive as volumes increased. So all of the near term uptrends on the charts remain intact as do the advance/decline lines for the NYSE, NASDAQ and All Exchange indexes. No sell signals have been registered. While all of the stochastic levels are overbought, no bearish crossover signals that might be actionable have been registered as well. So while we do have some concerns regarding market valuation etc., the current chart trends should be respected until proven otherwise. That doesn’t mean we would be aggressive buyers. It does suggest going short could prove painful at this stage of the chart setups.
The data remains mostly neutral. While the 21 day All Exchange and NYSE McClellan OB/OS Oscillators are now overbought, (All Exchange:+19.91/+54.46 NYSE:+28.56/+71.39 NASDAQ:+40.44/+44.67) the rest remain neutral. Both the Total and Equity Put/Call Ratios are neutral as well at 0.82 and 0.61 respectively while the OEX Put/Call Ratio is slightly bullish at 0.89. The Gambill Insider Buy/Sell Ratio remains a neutral 9.9.
In conclusion, there is yet to be enough of a shift in the weight of the evidence to cause a change in our near term “neutral/positive” outlook for the major equity indexes. Yet we would reiterate our serious concerns regarding the forward 12 month valuation of the SPX based on forward 12 month IBES earnings estimates at a new 12 year high of a 17.9 multiple as investment advisors remain complacent and see only blue skies with a 17.6/61.8 Investors Intelligence Bear/Bull Ratio. Historically, high valuation matched with complacency has preceded sharp market adjustments. Nonetheless, we have yet to see actionable signals in that regard.
Forward 12 month earnings estimates for the SPX from IBES of $132.33 leave a 5.6 forward earnings yield on a 17.9 forward multiple, a decade high.
SPX: 2,277/NA
DJI: 19,946/NA
COMPQX; 5,670/NA
DJT: 9,411/NA
MID: 1,697/NA
RTY: 1,377/1,357
VALUA: 5,387/NA