Data Starting To Soften
Opinion: All of the indexes managed to overcome early session weakness to close higher on the day, with the exception of the DJT. All closed at or near their intraday highs with positive internals. There was one bullish technical event on the charts while the data is starting to soften, but not to a point that would cause a shift in our near term “neutral/positive” outlook for the major indexes. The intermediate term remains “neutral/positive” as well due to much improved breadth. However valuation is nearing historically high levels.
- All but the DJT (page 3) closed higher yesterday, overcoming early session weakness, with positive internals as volumes declined from the prior session. All closed at or near their intraday highs. The DJT remains the only index trading below its 50 DMA while all of the short term uptrends remain intact. The one technical event of note was the MID (page 4) closing above resistance. Both the SPX (page 2) and VALUA (page 5) closed at resistance. We believe the intraday positive reversal from early selling pressure is worthy of some note for the short term.
- The data, on the other hand, has started to soften a bit, but not yet to a point of imminent concern, in our opinion. The All Exchange and NASDAQ 1 day McClellan OB/OS Oscillators are now both in overbought territory at +50.92 and +67.76 respectively, although the NYSE 1 day remains a neutral +41.84. All of the 21 day readings are neutral along with the OEX Put/Call Ratio (smart money) and Gambill Insider Buy/Sell ratio of 12.2. The WST Ratio and its Composite are neutral as well at 61.0 and 142.0. The Equity Put/Call Ratio (contrary indicator) darkens the picture a bit as it shows the crowd long calls at 0.55. So the data overview has turned less positive but not sufficiently, in our view, to alter our near term outlook.
- In conclusion, we remain “neutral/positive” for the near term. We hold the same view for the intermediate term as well, largely due to a significant improvement in market breadth. However, valuation for the SPX is becoming more of a concern as it approaches historically high valuations on a 12 month forward basis.
- Forward 12 month earnings estimates for the SPX from IBES of $124.48 leave a 5.93% forward earnings yield on a 16.9 forward multiple.
SPX: 2,057/2,100
DJI: 17,527/17,922
COMPQX; 4,820/4,972
DJT: 7,476/7,823
MID: 1,453/1,513
RUT: 1,119/1,169
VALUA: 4,547/4,691