Outlook Unchanged
Opinion: The indexes closed mostly higher Friday with positive internals on the NYSE and NASDAQ as volumes rose on the NYSE and declined on the NASDAQ. However, overall volumes were tepid. No technical events of import were generated on the charts, leaving their near term trends mixed, while the data remains mixed as well. All in all, little has changed since our last comments over a week ago. We remain concerned regarding market prospects as the charts are diverging with margin exposure historically high, investment advisors remaining complacent and valuation remains historically elevated. As such, we continue to view market risk notably higher than potential reward.
- On the charts, the bulk of the indexes closed higher Friday with the exception of the COMPQX (page 3) closing lower on the day. Since our last comments, there has been little alteration from a technical standpoint. The DJT (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) remain in their near term downtrends with most trading below their 50 and 200 DMAs. The VALUA is the only one in that group above its 200 DMA. The SPX (page 2), DJI (page 2) and COMPQX (page 3) are in neutral sideways patterns with only the DJI above its 50 DMA. The cumulative advance/decline lines are mixed as well with the All Exchange neutral and below its 50 DMA, the NYSE positive and above its 50 DMA while the NASDAQ id negative and below its 50 DMA. As such, market breadth remains weak and very selective, in our view.
- The data is mixed with all of the McClellan OB/OS Oscillators neutral (All Exchange:+15.08/-27.13 NYSE:+12.18/-13.97 NASDAQ:+17.88/-39.85) as is the Equity Put/Call Ratio at 0.69. The Total and OEX Put/Call Ratios are counterbalancing at 1.0 and 1.65 respectively while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) still finds advisors complacent at 18.1/50.5.
- In conclusion, SPX forward valuation remains near historic highs at 17.8 as does margin exposure (up 20.5% y/y) and investment advisor complacency as noted. When combined with what we perceive to be a notable 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
NASDAQ: 6,192/6,346
DJT: 9,118/9,422
MID: 1,701/1,731
RTY: 1,348/1,400
VALUA: 5,425/5,519