DJT Makes Second New Closing High
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ internals were mixed. Volumes rose on both exchanges from the prior session. No technical events of note were registered on the charts, leaving their short term trends mixed and intact. The data remains mixed as well. We continue to be of the opinion that risk/reward is poor for the markets at current levels given extended valuation, high levels of margin debt and investment advisor complacency. The recent break of the COMPQX below support and its 50 DMA add to that concern.
- On the charts, the indexes closed mixed yesterday with the SPX (page 2), COMPQX (page 3) and DJT (page 3) closing higher as the rest declined on the day. Internals were broadly negative on the NYSE while the NASDAQ saw a negative advance/decline but up/down volumes positive. No technical events of import occurred other than the DJT making a marginally new closing high. The bulk of the short term trends are neutral with the exceptions of the COMPQX now negative and the DJT positive.
- The data is mixed with all of the McClellan OB/OS Oscillators remaining neutral (All Exchange:2.0/+20.64 NYSE:+2.23/+35.7 NASDAQ:+2.86/+7.7) as are the Equity Put/Call Ratio (0.61) and Open Insider Buy/Sell Ratio at 44.0%. The Total Put/Call Ratio (contrary indicator) is in bullish territory at 0.92 but is being counterbalanced by a very bearish OEX Put/Call Ratio of 2.09 as the pros have loaded up on puts expecting weakness.
- In conclusion, we remain of the opinion that a high level of risk is present versus potential reward as the forward valuation of the SPX at an 18.2 multiple (over a decade high) combined with heavy margin exposure up 19.7% y/y and the Investors Intelligence Bear/Bull Ratio (contrary indicator) implying complacency on the part of investment advisors combine to suggest appreciable downside risk is present should an event occur that could cause a shift in sentiment.
- Forward 12 month earnings estimates for the SPX from IBES of $133..96 leave a 5.55 forward earnings yield on a 18.2 forward multiple, near a decade high.
SPX: 2,420/NA
DJI: 21,042/NA
COMPQX: 6,070/6,241
DJT: 9,371/NA
Mid: 1,715/1,769
RTY: 1,392/1,427
VALUA: 5,447/5,571