Data Mixed
Opinion: The indexes closed mixed yesterday with mixed internals on the NYSE while NASDAQ internals were negative. Volumes dipped on the NYSE as NASDAQ volumes increased from the prior session. There were no major technical events registered on the charts while the data remains mixed. So in spite of the positive preopen futures as a result of good ADP Employment Change numbers this morning, we remain “negative” in our near term outlook for the major equity indexes due to extended valuation, historically high margin debt, questionable breadth and investment advisor complacency.
- On the charts, The SPX (page 2), DJI (page 2), COMPQX (page 3) and DJT (page 3) closed higher yesterday while the MID (page 4), RTY (page 4) and VALUA (page 5) declined. However, the large cap advances occurred on negative breadth and lighter volume. No resistance or support levels were violated leaving the negative short term trends of the SPX, DJI and RTY intact. The rest are in neutral short term trends. Cumulative breadth is negative on the NASDAQ, neutral on the All Exchange and positive on the NYSE.
- The data remains mixed with all of the McClellan OB/OS Oscillators neutral (All Exchange:+13.79/+2.06 NYSE:+28.27/+22.98 NASDAQ:-9.41/-5.58). The Equity Put/Call Ratio is neutral at 0.62 while the Total (contrary indicator) and OEX Put/Call Ratios are bullish at 1.12 and 0.47 respectively.
- What continues to be of concern for us is the extended valuation of the SPX at a 17.8 multiple of forward 12 month forward IBES earnings estimates while the use of margin debt has risen 21 % on a y/y comparison to over $513B as investment advisors remain quite complacent via the Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) at 18.3/55.8. This combination of data suggests an appreciable level of risk, in our opinion, should the markets experience a bump in the road.
- In conclusion, in spite of the indications of a positive open this morning, our near term “negative” outlook for the major equity indexes remains unchanged given extended valuation, investment advisor complacency, current short term trends and the high degree of leverage being currently employed in the markets.
- Forward 12 month earnings estimates for the SPX from IBES of $132.89 leave a 5.63 forward earnings yield on a 17.8 forward multiple, near a decade high.
SPX: 2,342/2,373
DJI: 20,109/20,865
COMPQX; 5,795/5,923
DJT: 8,906/9,188
MID: 1,687/1,728
RTY: 1,338/1,384
VALUA: 5,331/5,477