Uptrends Intact
Opinion
All of the indexes closed lower yesterday with negative internals as volumes were flat on the NYSE and above prior levels on the NASDAQ. Losses were moderate resulting in no technical events on the charts. The data is now largely neutral while the options levels have turned positive. So I spite of our concerns regarding valuation and the extended level of the recent rally, the uptrends of all the indexes remain intact with no sell signals being generated at this point. Until said signals are generated, said trends should be respected.
- On the charts, all of the indexes saw modest losses yesterday but no chart events took place that would alter their current uptrends. As such, with their trends intact, until some signals are generated on the charts, the implication is for further progress.
- The data is largely neutral with only the 21 day NYSE McClellan OB/OS Oscillator overbought at 64.36. The put/call ratios are positive as the crowd is long puts on the Total and Equity Put/Call Ratios (contrary indicators) at 1.0 and .73 respectively. The pros measured by the OEX Put/Call Ratio (smart money) have done another U-turn form their prior heavy put positions to now being heavy in calls at 0.46. Of late, we have found the OEX data to be less and less instructive and will likely be giving it lesser weight in our analysis going forward. The Gambill Insider Buy/Sell Ratio is a neutral 14.4. As such, the data is showing no strong direction implications at this point.
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- What does remain a concern for us is what we believe to be extended valuation for the SPX at 16.8X forward 12 month IBES earnings estimates. This is in the face of Q3 earnings reported to date for the SPX being down 3.1%.
- In conclusion, as the charts march higher and the data remains neutral, valuation continues to suggest potential risk. However, until the charts show some cracks, progress for the indexes should be expected until proven otherwise.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.96% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.26 versus the 10-year Treasury yield of 2.23%.
- SPX: 2,022/2,113
- DJI: 17,566/18,033
- NASDAQ; 4,923/5,144
- DJT: 8,034/8,330
- MID: 1,445/1,480
- Russell: 1,162/1,193