Data Unavailable
Opinion: All of the indexes closed higher yesterday with only the DJT unable to make a new closing high. All of the chart short term uptrends remain intact. The data is unavailable this morning but we see little reason to expect much change from the prior readings. As such, although the chart near term uptrends remain intact suggesting higher prices may continue, current sentiment levels and valuation imply risk is quite high relative to potential reward over the short to intermediate term. Our next report will be Friday, 2/27.
- On the charts, all of the indexes closed higher yesterday on positive breadth with all but the DJT (page 3) making new closing highs. The current short term uptrends remain intact. The DJT was finally able to close above resistance that has now been adjusted to 9,236. Until there is a break in the current trends, the charts suggest higher prices. The stochastic levels remain very elevated but short of triggering bearish crossover signals.
- Regarding the data, our concerns are unchanged. The extremely high levels of bullish sentiment from the “crowd” in the form of the Investors Intelligence and AAII Bear/Bull Ratios (contrary indicators) as well as the Rydex Ratio in sharp contrast to the Gambill Insider Buy/Sell Ratio that shows insiders actively selling their shares is typically a sign of markets at an extreme and vulnerable to correction. While it is not a short term “timing” signal, it does imply a respectable amount of potential risk.
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- Valuation at a decade high of 17.3X forward 12 month First Call earnings estimates of $121.98 for the SPX that have been in a consistent downward trend for the past several weeks add to our consternation as it implies the market is expensive with little cushion from a valuation perspective.
- So our song remains the same. We believe caution is likely to prove the greater part of valor over the near and intermediate term in spite of the technical chart patterns remaining in their current short term uptrends.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.78% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $121.98 versus the 10 Year Treasury yield of 2.06%.
SPX: 2,063/???
DJI: 17,861/???
COMPQX: 4,813/???
DJT: 8,877/9,236
MID: 1,474/???
RUT: 1,190/???