Options Data Slightly Positive
Opinion: All of the indexes closed lower yesterday with increased volume and negative internals. However, no support levels were violated on a closing basis as all closed near the midpoint of their intraday ranges. All of the current short tern downtrends remain intact. The data remains mostly neutral but the Put/Call Ratios are suggesting some possible very near term lift, although whether it will be enough to shift the current trend remains to be seen. We would respect the current trends unless they are violated. As such, we are short term neutral/negative while remaining cautious for the intermediate term.
- On the charts, all of the indexes closed lower with negative internals on heavier volume. Yet with the bad news coming out of Europe, the selling pressure was not sufficient to violate any support levels. The DJI (page 2), MID (page 4) and RUT (page 4) all tested support but managed to close above. However, all of the short term downtrends remain intact leaving the prior technical setup unchanged. The fact that supports held on the negative news may be a near term positive. However, unless the downtrends are violated, we would continue to view them with respect.
- On the data, all of the McClellan OB/OS Oscillators remain neutral (NYSE:-32.29/-36.67 NASDAQ:-49.26/-21.87) as well as most of the rest of the data. However, the Total Put/Call Ratio (contrary indicator) now shows the crowd very heavy in puts at 1.15 while the OEX Put/Call Ratio at .78 shows the pros still expecting some short term relief from the recent downdraft. So, it is our sense that the options picture is sending an ever so slightly positive short term signal for the indexes. Unfortunately, there is little else from the data to add addition influence.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
- So while the near term downtrends remain intact, we suspect there is some potential for some very short term relief. Yet the intermediate term remains a problem for us as leverage remains high, up 14% y/y, valuation remains near a decade high at 16.5X IBES SPX forward 12 month earnings estimates, the DJT continues to slide in spite of weak oil prices and overall breadth remains poor
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.04% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.04 versus the 10 Year Treasury yield of 2.28%.
SPX: 2,053/2,091
DJI: 17,586/17,890
COMPQX: 4,935/5,049
DJT: 7,987/8,306
MID: 1,496/1,527
RUT: 1,242/1,273