SPX Forward 12 Month Estimates Rise
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose on the NYSE and declined on the NASDAQ. There were two conflicting technical events on the charts while the data has become a bit more cautionary. Our net take on the current short term outlook has turned from “neutral/positive” to “neutral” while the intermediate term outlook remains “neutral/positive” with a notable lift in forward earnings estimates for the SPX combined with positive market breadth.
- All of the indexes closed higher yesterday with positive internals with some closing near their intraday highs as others closed near their midpoints. Two technical events occurred, sending opposing signals. The SPX (page 2) closed above short term resistance that is now adjusted to 2,132. However, the COMPQX closed below its short term uptrend that has been in place since the 5/19 low. While the trend break is not dire, possibly being neutral in nature, it does suggest some potential fatigue for that index. The rest of the uptrends remain intact while all of the stochastic levels remain in the top range of their overbought conditions.
- The data still finds the McClellan OB/OS Oscillators overbought and at higher levels (All Exchange:+71.64/+73.3 NYSE:+74.9/+91.34 NASDAQ:+70.98/+58.14) suggesting some increased risk potential. And while the Equity Put/Call Ratio (0.59) and Gambill Insider Buy/Sell Ratio (12.2) remain neutral, the OEX Put/Call Ratio (smart money) finds the pros remaining very heavy in puts and expecting weakness at 2.11. The new Investor’s Intelligence Bear/Bull Ratio (contrary indicator), although neutral, finds bulls well outnumbering bears at 23.8/47.3. So, in our opinion, the data is now flashing some yellow lights.
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- In conclusion, although the charts have yet to yield any near term sell signals, the extent of the recent rally in combination with the data readings is enough to shift our near term outlook to “neutral” from “neutral/positive”. For the intermediate term, IBES has just raised their forward 12 month earnings estimates for the SPX from $124.48 to $125.82, giving some minor relief to high forward valuation. When the positive breadth characteristics are added to the mix, we remain “neutral/positive” for that timeframe.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 5.94% forward earnings yield on a 16.8 forward multiple.
SPX: 2,087/2,132
DJI: 17,650/18,058
COMPQX; 4,861/5,003
DJT: 7,638/7,950
MID: 1,482/1,530
RUT: 1,133/1,201
VALUA: 4,636/4,792