SPX Forward Earnings Estimates Reduced
Opinion: The indexes put in another mixed performance yesterday as internals were broadly negative while volumes declined. While performance was evenly split, we are becoming increasing concerned regarding the very poor breadth that implies not all is as well as it may appear on the surface. And while most of the data remains neutral and no important chart sell signals were generated, we are shifting our opinion to short term negative as we see the internal foundations being further compromised. The decline in forward 12 month earnings estimates for the SPX heightens our intermediate concerns as well.
- On the chart, the indexes were again evenly split with half advancing and half declining. The COMPQX (page 3) made another new closing high but internal breadth was horrible which continues to suggest the index is smoke screening an otherwise lousy market. The SPX (page 2) and DJI (page 2) tested resistance and failed again. The DJT (page 3) closed near its intraday lows in spite of oil continuing to slide. The RUT (page 4) closed below its short term uptrend line as the MID (page 4) remains in the middle of its current trading range. All of the stochastic levels remain overbought.
- The data remains largely neutral including all of the McClellan OB/OS Oscillators (NYSE:+11.57/-8.89 NASDAQ:-6.44/-31.43). The WST Ratio and its Composite remain negative at 68.7 and 173.2 while the Total and OEX put Call Ratios are bullish and mildly bullish respectively at .91 and .95. As such, the data is fairly evenly balanced and not sending a clear near term directional implication.
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- Forward 12 month earnings estimates from IBES for the SPX have been reduced by a notable amount from $126.04 to $124.50 that puts its forward p/e back at its decade high of 17.1X increasing our intermediate term concerns regarding valuation. Revenue growth remains poor as well as analysts expect a 1.5% gain (excluding energy that, if included, would see a 4% decline) on the quarter according to Ed Yardeni.
- In conclusion, while the charts remain range bound for the most part, both our near and intermediate term concerns are increasing.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.85% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.5 versus the 10 Year Treasury yield of 2.37%.
SPX: 2,079/2,130
DJI: 17,793/18,120
COMPQX: 5,103/???
DJT: 7,987/8,306
MID: 1,499/1,527
RUT: 1,239/1,274