Data Slightly Negative
Opinion
All of the indexes advanced yesterday with positive internals as some charts improved. However, we remain short term neutral due to some data as well as a lack of impressive volumes on the rally. Valuations are back at peak levels keeping us cautious for the intermediate term.
- All of the indexes closed higher yesterday with positive internals resulting in some chart improvements as follows. The SPX (page 2) made a new closing high. However, resistance was not violated as the advance stalled at several prior intraday highs. The DJI (page 2) closed above resistance but just shy of a new closing high. The COMPQX (page 3) closed above resistance along with the MID (page4) that also closed above its 50 DMA.
- The DJT (page 4) advanced but significantly less than the other indexes. In our opinion, the DJT chart still appears to be rolling over. As we believe it to be the leading index, it keeps us from becoming more positive for the balance of the indexes.
- The data is largely neutral including all of the McClellan OB/OS Oscillators (NYSE: +11.75/-6.71 NASDAQ:+16.3/-19.28). There are some slightly cautionary messages coming from the WST Ratio and its Composite that are both bearish at 69.0 and 156.0 respectively. As well, the OEX Put/Call Ratio (smart money) at a bearish 1.69 implies the pros are of the opinion that the recent rally may have reached its zenith and is likely to see some corrective action. So the data is slightly negative for the short term.
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- As such, we remain neutral in our short term outlook while valuations have returned to a decade high of 17.1X forward 12 month earnings estimates for the SPX from IBES keeping us concerned for the intermediate term. Valuation plus what we perceive as investor complacency in combination with the rise and technical reversal in the 10 year Treasury yield add to that concern.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.86% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.28 versus the U.S. 10-Year yield of 2.24%.
- S&P 500: 2,095/2,121
- US 30: 18,041/???
- NASDAQ Composite; 4,978/5,073
- Dow Jones Transportation: 8,541/8,802
- S&P Midcap 400: 1,495/1,534
- Russell 2000: 1,206/1,252