Forward 12 Month SPX Estimates Swoon
Opinion: The oversold conditions mentioned in Friday’s report did result in some relief from the recent declines as all of the indexes closed higher with positive internals and good breadth. Given the current status of the data and charts, we suspect there is a bit more bounce potential remaining for the very near term. However, forward 12 month earnings estimates for the SPX have just taken a sizable hit, in our opinion, from $126.07 to $124.62 that, in combination with sentiment levels, causes us to remain cautious regarding the intermediate term outlook.
- On the charts, all of the indexes closed higher Friday with positive internals and generally strong volumes. As well, all of the indexes closed at or very near their highs of the day. However, no important resistance levels were broken while all of the short term downtrends remain intact. As such, there was nothing of technical significance resulting from Friday’s action.
- On the data, the oversold conditions have moderated from their prior levels as most are now neutral (NYSE:-3.39/+59.44 NASDAQ:-32.02/+12.44). With only the 21 day NYSE overbought, we are of the opinion that the current neutral readings offer a bit more bounce potential for the very near term. The OEX Put/Call Ratio (smart money) and Total Put/Call Ratio (contrary indicator) are both on bullish signals as well (0.72/.91) adding to the short term positive outlook.
- Yet we remain quite concerned regarding the intermediate term. First Call has just slashed their SPX 12 month forward earnings estimates from $126.07 to $124.62 pushing the forward 12 month p/e back up to 16.2X. As well, we noted last week that the recent decline in the equity markets had essentially no impact on what we consider to be overly bullish sentiment on the part of the “crowd” while insiders remain largely absent from the buy side with a low 9.9 Gambill Insider Buy/Sell Ratio. As such, the intermediate term remains cautionary in our view.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.17% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.62 versus the 10-Year Treasury yield of 1.81%.
SPX:1/977/2,030
DJI:17,265/17,897
COMPX:4,544/4,686
DJT:8,656/8,995
MID:1,401/1,440
RUT:1,155/1,199