DJT Makes New Closing High
Opinion: The indexes closed mostly higher Tuesday with positive internals on the NYSE while NASDAQ internals were mixed. Volumes declined from the prior session due to abbreviated trading. Two of the indexes saw important technical developments while the rest remain confined within their neutral, sideways patterns. The data is mixed with a few signs of caution appearing. While the index charts are showing a mixture of near term trends, we remain concerned regarding the markets near term prospects as historically high valuation, high levels of margin debt and advisor complacency continue to suggest risk levels are high versus potential reward.
- On the charts, all of the indexes closed higher Tuesday with the exception of the COMPQX. NYSE internals were positive while the NASDAQ saw positive advance/decline numbers but up/down volumes were negative. The most important events occurred on the COMPQX (page 3) that closed below support as well as its 50 DMA, now changing its near term trend to negative, while the DJT (page 3) made a new closing high within its current uptrend. The balance of the indexes remain confined within their respective sideways, neutral patterns.
- The data is mixed with all of the McClellan OB/OS Oscillators neutral (All Exchange:+21.26/+18.11 NYSE:+27.27/+34.98 NASDAQ:+15.68/+2.62) as is the Open Insider Buy/Sell Ratio at 45.2. Caution signs are coming from the Equity (contrary indicator) and OEX Put/Call Ratios as the Equity finds the crowd long calls at 0.55 while the pros via the OEX are long puts at 1.64. There was a slight shift in the Investors Intelligence Bear/Bull Ratio (contrary indicator) to 21.3/50.1 moving it to mildly bearish territory while margin debt slipped slightly but remain bearish as it is up 19.7% on a y/y basis.
- 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 combined with heavy margin exposure 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: 2,420/NA
DJI: 21,042/NA
COMPQX; 6,070/6,241
DJT: 9,371/9,554
MID: 1,715/NA
RTY: 1,392/1,427
VALUA: 5,447/5,571