Data Turns Mostly NeutralOpinion
All but one of the major indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes rose from the prior session. Two new closing highs were achieved on the charts leaving all of the near term trends intact. The data is now largely neutral, having been bullish prior to yesterday’s action. So in spite of forward valuation of the SPX appearing stretched, we remain of the opinion that the near-term trends of the indexes should continue to be respected until proven otherwise.
- On the charts, the only index to close lower yesterday was the DJT (page 4) with the rest posting gains on positive internals. Both the COMPQX (page 3) and NDX (page 3) made new closing highs. The near term trends remain positive for the SPX (page 2), DJI (page 2), COMPQX (page 3), NDX (page 3) and MID (page 4). The rest are neutral. The cumulative advance/decline lines are neutral on the All Exchange and NYSE with the NASDAQ cumulative A/D remaining negative. The neutral to negative breadth for the markets as a whole speak to the selectivity of stocks participating in the advances, in our opinion. Another indication of selectivity is the % of SPX components trading above their 50 DMAs has declined from 73% to 62.3% over the past week. Not all boats are rising with the tide.
- The data is largely neutral including the bulk of the McClellan OB/OS Oscillators with only the NYSE 1-day remaining mildly oversold (All Exchange:-33.93/-0.99 NYSE:-56.25/+11.78 NASDAQ:33.05/-12.8). The Equity Put/Call Ratio (0.69), OEX P/C (1.26) and Open Insider Buy/Sell Ratio (35.1) are neutral as well. The Total P/C (contrary indicator) is a mildly bullish 0.87.
- In conclusion, although the forward p/e for the SPX based on forward 12 month earnings estimates from Bloomberg remains near a 15 year high at an 18.8 multiple, we suspect some lifting of those estimates may be forthcoming given the strong earnings reports from some of its heavily weighted components. And given the structure of the charts and data, continuing to respect the near term trends of the indexes continues to be appropriate, in our view, until proven otherwise.