Data Neutral
Opinion: The indexes closed mostly higher yesterday although internals were negative on the NYSE. NASDAQ internals were positive as volumes rose from prior levels on both exchanges. No major technical events occurred on the charts, leaving most of the indexes in their short term downtrends. The data is almost entirely neutral. As such, given the current trends, market internals, valuation, margin exposure and advisor complacency, we remain of the opinion that risk outweighs reward at present.
- On the charts, the bulk of the indexes closed higher yesterday with the exceptions of the MID (page 4) and VALUA (page 5) closing lower. Advances on the large cap indexes, however, occurred on negative breadth and negative up/down volume. No important technical events occurred beyond the COMPQX (page 3) closing back above its 50 DMA while remaining in its neutral short term trend. The DJI near term trend is neutral as well while the rest of the indexes find themselves confined within short term downtrends. Cumulative advance decline lines are neutral on the All Exchange and NYSE while the NASDAQ remains negative.
- The data is almost entirely neutral including all of the McClellan OB/OS Oscillators (All Exchange:+10.91/-27.84 NYSE:+0.91/-20.79 NASDAQ:+19.76/-34.130. The Total, Equity and OEX Put/Call Ratios are all neutral at 0.77, 0.61 and 1.26 respectively. Margin debt exposure has declined a bit but remains 15.9% higher on a y/y basis and a concern.
- In conclusion, SPX forward valuation remains near historic highs at 17.8 as does margin exposure (up 15.9% y/y) and investment advisor complacency as seen by the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 18.1/50.5.. When combined with what we perceive to be a narrowing of market breadth, we continue to view market risk as high versus potential reward.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56 forward earnings yield on a 17.8 forward multiple, near a decade high.
SPX: 2,420/2,467
DJI: 21,640/22,019
COMPQX; 6,192/6,346
DJT: 9,118/9,422
MID: 1,701/1,731
RTY: 1,348/1,400
VALUA: 5,425/5,519