SPX Forward Estimates Reverse DownOpinion
All of the indexes closed higher yesterday with positive internals. Volumes were respectable but were somewhat lower than the prior decline. No technical events of import were achieved on the charts, in our opinion. The U.S. Dollar saw a pause in its recent decline while the rise in the 10 year Treasury yield paused as well, as discussed yesterday. The data is essentially neutral suggesting a neutral near term outlook. IBES has done a U-turn be reversing its prior rise in forward estimates for the SPX back down, leaving us cautionary for the intermediate term.
- On the charts, all of the indexes rose yesterday but resulted in no important technical signals, in our opinion. All of the short term downtrends remain intact. As discussed briefly yesterday, the USs. Dollar did see a pause in its decline while the rise in the yield for the 10 Year Treasury stalled as well. Their recent dramatic change in trend is an issue that, in our opinion, may prove problematic for the equity indexes on a more intermediate term basis. We will continue to watch them closely for any further signals. So, we remain short term neutral at this point for the indexes.
- The data is largely neutral as well. Only the NYSE 1 day McClellan OB/OS Oscillator remains oversold at -68.23. The 1 day NASDAQ OB/OS has turned a neutral -40.72. The Equity Put/Call Ratio (contrary indicator) is neutral as well at .69 while the new AAII Bear/Bull Ratio (contrary indicator) shows individual investors dead even at 26.84/27.06. The only warning is coming from the OEX Put./Call Ratio (smart money) that shows the pros are starting to go long puts again at a bearish 1.54. As such, the data is largely neutral as well.
- Valuation remains an intermediate term concern as IBES, after lifting forward 12 month earnings estimates for the SPX Wednesday, has reversed their decision and, once again, lowered their outlook. The prior $123.22 estimate has been reduced back to $122.80 leaving the forward SPX p/e near its decade peak valuation at 17X.
- In conclusion, the charts and data are fairly neutral for the near term while we remain concerned for the more intermediate term outlook.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.88% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $122.80 versus the U.S. 10-Year yield of 2.18%.
- S&P 500: 2,073/2,121
- US 30: 17,827/18,108
- NASDAQ Composite; 4,919/5,028
- Dow Jones Transportation: 8,541/8,802
- S&P Midcap 400: 1,495/1,523
- Russell 2000: 1,206/1,252