Some Data Implies Increased Risk

More New Closing Highs Registered

Opinion

All of the indexes we cover closed higher yesterday with positive internals as volumes rose on the NASDAQ and declined on the NYSE. All achieved new closing highs and remain in their current near term uptrends. However, the data is starting to suggest near term risk is elevating and that some retracement/consolidation of the recent rally may be forthcoming. Nonetheless, we remain of the opinion that the near term uptrends of the indexes should continue to be respected until proven otherwise.

• On the charts, all of the indexes closed higher yesterday with positive internals with all achieving new closing highs. The near term uptrends of the indexes remain intact as do those of the cumulative advance/decline lines that remain above their 50 DMAs for the NYSE, NASDAQ and All Exchange. There are no current sell signals on the charts, thus suggesting the current trends should still be respected. However, we would note some of the charts are now extended well above their 50 DMAs while all are overbought on their respective stochastic readings.

• The data is now sending some yellow flag signals. All but one (the NYSE 1 day) of the McClellan OB/OS Oscillators are overbought (All Exchange: +55.45/+72.72 NYSE: +46.6/+78.46 NASDAQ: +70.33/+74.14). The OEX Put/Call Ratio finds the pros back on the bearish side of the fence and loaded in puts at 2.24 while the Open Insider Buy/Sell Ratio has slipped into bearish territory at 23.6 as insiders have increased their selling into the rally. As well, we now find the forward valuation of the SPX based on forward 12 month earnings estimates form Bloomberg at a new 15-year high at an 18.5 multiple. The rest of the data is largely neutral. When viewed in aggregate, our interpretation is one of an increase in near term risk based on the data message.

• In conclusion, while we formally remain of the opinion that the near term uptrends of the indexes should continue to be respected, the data is now implying some elevation in near term risk that may result in some consolidation/retracement of the recent rally gains.

• Forward 12-month earnings estimates for the SPX from Bloomberg of $137.37 leave a 5.56 forward earnings yield on a 18.5 forward multiple, over a decade high.
• SPX: 2,475/NA
• DJI: 22,047/NA
• NASDAQ: 6,361/NA
• DJT: 9,542/NA
• MID: 1,740/NA
• Russell: 1,450/NA
• VALUA: 5,646/NA