SPX Forward EPS Estimates Lift
Opinion: Yesterday proved to be an interesting day in the markets as all closed lower after being higher most of the day. Internals on the NYSE were actually positive while the NASDAQ saw a positive A/D but negative Up/Down Volumes. The most notable chart event took place on the DJT as it flashed a bearish crossover signal while we now see First Call actually lifting forward EPS estimates for the SPX. As the data is quite mixed, we now see the near term outlook to be neutral while in spite of the lift in SPX earnings estimate, its valuation leaves us concerned for the intermediate term.
- On the charts, all of the indexes closed lower yesterday as the SPX (page 2) and DJI (page 2) both tested resistance and failed. The most notable event took place on the DJT (page 3) that suffered the worst decline as it broke below its short term uptrend line while flashing a bearish stochastic crossover signal. Those events cast a cloud over the DJT from a technical perspective. As we still view the DJT as the leading index, it could cause an issue for the others. However, the other indexes have yet to send the necessary signals that would raise concern.
- The data is mixed as the McClellan OB/OS Oscillators remain neutral (NYSE:+37.21/+18.55 NASDAQ:+26.52/+7.83) along with the Gambill Insider Buy/Sell Ratio at 11.6. Sentiment is evening out as the ISEE Put/Call Ratio (contrary indicator) at -14.9 has actually turned bullish as international options traders have gone broadly long puts. However, the OEX Put/Call Ratio (smart money) shows the pros very long puts as well at 1.84 and expecting weakness. As such, the data, in our opinion, is too diverse in its messages to yield a high probability near term call.
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- We would note First Call has now actually raised its forward 12 month earnings estimates for the SPX from $122.68 to $123.22. However the lift does not diminish our concerns regarding valuation as the SPX forward 12 month p/e based on First Call’s outlook still leaves the SPX at a decade high valuation of 17.1X forward estimates.
- In conclusion, we see the near term outlook for the indexes as neutral and cautionary for the more intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.82% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $122.68 versus the 10 Year Treasury yield of 1.93%.
SPX: 2,064/2,109
DJI: 17,642/18,130
COMPQX: 4,938/???
DJT: 8,912/9,182
MID: 1,496/???
RUT: 1,236/???