DJT Makes New Closing High
Opinion: All of the indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. The Charts saw some 50 DMAs reclaimed that had been violated earlier in the week but the near term trends were unaffected. The data remains largely neutral and uninstructive. The issues of extended market valuation, high levels of margin debt and investment advisor complacency continue to be a concern in spite of the rather neutral pictures coming from the charts and data. As such, we remain of the opinion that current risk/reward in the markets remains poor.
- On the charts, all of the indexes closed higher Friday with positive internals but on shrinking volume. The PSX (page 2), MID (page 4) and VALUA (page 5) all managed to close back above their 50 DMAs violated earlier in the week while the DJT (page 3) made a new closing high. However, none of the current resistance levels were violated, leaving the COMPQX (page b2) in its short term downtrend, the DJT in its short term uptrend while the balance remain neutral.
- The data remains largely neutral as well including all of the McClellan OB/OS Oscillators (All Exchange:-10.39/+19.75 NYSE:-17.45/+32.51 NASDAQ:-1.77/+9.84). The Total and equity Put/Call Ratios are a neutral at 0.93 and 0.66 respectively as is the Open Insider Buy/Sell Ratio at 43.8. One bullish signal is coming from the OEX Put/Call Ratio as the pros bought calls at 0.81.
- 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 18.1 multiple (near a 15 year 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 18.1 forward multiple, near a decade high.
SPX: 2,404/2,433
DJI: 21,305/21,505
COMPQX: 6,070/6,219
DJT: 9,439/NA
Mid: 1,730/1,758
RTY: 1,392/1,427
VALUA: 5,447/5,527