Data Neutral
Opinion: The indexes closed mixed yesterday with a few new closing highs achieved. Internals were mixed on the NYSE and NASDAQ as Volumes dipped on the NYSE and rose on the NASDAQ. All of the current short term trends remain intact while the data remains largely neutral. As such, we continue to be of the opinion that although the current chart trends should be respected until proven otherwise, a significant amount of downside risk is present given the extended valuation of the SPX combined with the massive employment of margin debt.
- On the charts, The SPX ([age 2), DJI ([page 2) and COMPQ (page 3) all closed higher yesterday and achieved new all-time closing highs. The rest of the indexes declined. Internals were mixed on both exchanges as the NYSE had a positive advance/decline but down volumes well exceeded up volume. The opposite was the case on the NASDAQ. No near term support levels or trend lines were violated on the charts, leaving all but the DJT in short term uptrends while the DJT remains in its near term downtrend. We remain of the opinion that the chart trends should be respected until proven otherwise. Cumulative breadth is positive on the All Exchange, NYSE and NASDAQ.
- The data remains largely neutral. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day being mildly overbought (All Exchange:+13.09/+35.39 NYSE:+12.54/+52.17 NASDAQ:+13.5/+21.43). The Total and Equity Put/Call Ratios are neutral at 0.74 and 0.65 respectively as is the Open Insider Buy/Sell Ratio at 55.7. The only negative signal is coming from the OEX Put/Call Ratio that finds the pros very heavily weighted in puts at 2.88 as they bet on expectations of near term weakness.
- In conclusion, while there is nothing particularly onerous on the charts or in the data to imply negativity to a significant degree, thus suggesting the near term trends of the charts should continue to be respected, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is at a 15 year high with an 18.5 forward multiple and margin debt is at historically extreme levels and up 20.7% y/y, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $134.01 leave a 5.53 forward earnings yield on a 18.5 forward multiple, over a decade high.
SPX: 2,429/NA
DJI: 21,305/NA
NASDAQ: 6,305/NA
DJT: 9,428/9,727
Mid: 1,758/NA
RTY: 1,426/NA
VALUA: 5,565/NA