SPX Forward 12 Month Earnings Estimates Reduced
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows resulting in some consolidation as projected in yesterday’s comments. Importantly, the vast majority of technical support and short term uptrend lines were not violated in spite of the sizable pullback. The data remains largely neutral with a very slight positive edge. As such, we are inclined to keep our short term outlook at neutral while remaining intermediate term cautious.
- On the charts, all of the indexes closed lower on heavier volume with broadly negative internals. Yet, as mentioned above, there was only one technical event worthy of comment as the VALUA (page 5) closed marginally below its short term uptrend line. However, the other six indexes saw no violations of short term trend while none violated support. As such, we believe the action was a consolidation of the recent rally gains as speculated in yesterday’s comment. The technical issues at hand on the charts are that all but the COMPQX (page 3) and DJT (page 4) are overbought on their respective stochastic levels. While no bearish crossovers have been generated, as overbought conditions can be worked off via sideways movement, they are worthy of note and should be monitored closely.
- The data has eased off of its prior negative signals as all of the 1 day McClellan OB/OS Oscillators have returned to neutral (All Exchange:+19.53 NYSE:+28.47 NASDAQ:+7.43). The 21 day readings remain oversold (All Exchange:-87.56 NYSE:-79.34 NASDAQ:-101.5). The OEX Put/Call Ratio (smart money) now shows the pros shifting back to being long calls at 0.68 implying their expectations of some near term strength while the Gambill Insider Buy/Sell Ratio continues to find insiders as very active buyers at 52.2. As such, the data is slightly positive but not sufficient, in our opinion, to alter our near term outlook.
- As a side note, gold as measured by the GLD ETF, rose to and closed on its 3 ½ yearlong downtrend line. Should the trend be violated, it could prove meaningful for gold.
- In conclusion, we remain short term neutral and intermediate term cautious for the major equity indexes.
- Forward 12 month earnings estimates for the SPX from IBES have been reduced from $124.43 to $123.13 resulting in a 6.47% forward earnings yield with a 15.5 forward multiple.
SPX: 1,875/1,949
DJI: 15,975/16,592
COMPQX; 4,418/4,644
DJT: 6,580/7,022
MID: 1,230/1,315
RUT: 982/1,052
VALUA: 3,888/4,070