VIX At Bottom Of Range
Opinion: All of the indexes closed higher yesterday with positive internals while volumes rose on the NYSE and declined on the NASDAQ. Two new closing highs were achieved on the index charts while the data is neutral with a few cautionary signals. The VIX is back at the bottom of its trading range implying the probability of the markets seeing some return of volatility over the near term. As such, our assessment of the evidence suggests maintaining our near term “neutral/negative” outlook for the major indexes while forward valuation of the SPX back at peak levels keeps the intermediate term view “neutral”.
· On the charts, all of the indexes closed higher yesterday with positive internals as the DJI (page 2) and MID (page 4) made new closing highs. The NASDAQ (page 3) closed back above its 50 DMA. However, those improvements are, in our opinion, being counterbalanced by the VIX (page 9) that was driven back down to support levels that are historically followed by a rise in market volatility and lower index prices.
· The data is a mix of neutral and cautionary signals. All of the 1 day McClellan OB/OS Oscillators are neutral (All Exchange:+18.92 NYSE:+35.46 NASDAQ:+33.39) while all of the 21 day levels are now overbought (All Exchange:+67.74 NYSE:+71.68 NASDAQ:+90.51). The Equity Put/Call Ratio is neutral at 0.63 along with the OEX Put/Call Ratio (smart money) at 1.01 and WST Ratio/Composite at 52..0/131.6. However, insiders continue to shed stock now that their prices have escalated with the Gambill Insider Buy/Sell Ratio at a bearish 8.3. This is in sharp contrast to their active buying at the recent market lows.
· In conclusion, we remain near term “neutral/negative” for the major equity indexes post their significant rally after the election. Prices have escalated notably with crowd sentiment overly bullish as implications of volatility reentering the markets suggest risk/reward is not advantageous enough to chase current levels. Forward valuation of the SPX back at historic highs also implies limited upside at current levels.
· Forward 12 month earnings estimates for the SPX from IBES of $129.74 leave a 5.88 forward earnings yield on a 17.0 forward multiple.
SPX: 2,182/2,213
DJI: 18,862/NA
COMPQX; 5,242/5,364
DJT: 8,736/9,140
MID: 1,583/NA
RTY: 1,300/NA
VALUA: 5,094/NA