SPX Forward 12 Month Earnings Estimates Shaved
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose on the NYSE and declined on the NASDAQ. The charts saw some further technical deterioration while the data has turned more positive, suggesting some respite from the recent weakness. Thus we are now “neutral” in our short term outlook due to the data while the charts remain a concern. Forward earnings estimates for the SPX have been lowered leaving the forward multiple valuation near historic highs, in spite of recent price weakness, leaving our intermediate term outlook at “neutral”.
- On the charts, all of the indexes closed lower yesterday with negative internals. More chart weakness was seen in the following manor. The DJI (page 2) closed below near term support as did the MID (page 4). The DJT (page 3) closed below its 50 and 200 DMAs while the VALUA (page 5) closed below its intermediate term uptrend line. Some notable improvement in the charts will be required in order to become more sanguine regarding their outlook, in our opinion.
- The data, however, is now sending a more positive message for the short term as all of the 1 day McClellan OB/OS Oscillators are now oversold (All Exchange:-69.5 NYSE:-65.04 NASDAQ:-77.7). Only the NYSE 21 day remains overbought at +77.59. All of the put/call ratios are encouraging as well with the “crowd” remaining heavy in puts via the Total and Equity Put/Call Ratios (contrary indicators) at 1.09 and 0.8 respectively while the OEX Put/Call Ratio (smart money) shows the pros long calls at 0.7 and expecting some relief.
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- In conclusion, we are shifting our near term outlook to “neutral” for the indexes largely due to the change in the data. However, their technical picture remains a concern.
- For the intermediate term, we remain “neutral” as the IBES forward 12 month earnings estimates for the SPX have just been lowered from $123.42 to $122.95, leaving market valuation in the upper end of its historical range. The recent decline in the SPX has done little to moderate said valuation.
- Forward 12 month earnings estimates for the SPX from IBES of $122.95 leave a 5.99% forward earnings yield on a 16.7 forward multiple.
SPX: 2,044/2,091
DJI: 17,553/17,972
COMPQX; 4,716/4,888
DJT: 7,747/8,088
MID: 1,435/1,466
RUT: 1,107/1,162
VALUA: 4,550/4,659