SPX Forward Estimates Rise
Opinion: All of the indexes rose yesterday with positive internals as volumes increased on both the NYSE and NASDAQ. All of the indexes closed near their intraday highs as a couple of short term positive chart signals were generated. The data remains largely neutral while IBES has raised their 12 month forward earnings estimates for the SPX. As such, we suspect there may be a bit more short term lift left in the markets. However, our intermediate term concerns remain intact leaving us, at this point, expecting the indexes to challenge their respective resistance levels but with a higher probability of failing.
- On the charts, all of the indexes closed higher yesterday as volumes rose with positive breadth. All of the indexes closed near their highs of the day. Positive chart events came in the form of the COMPQX (page 3) closing back above its 50 DMA and its intermediate term uptrend line while the MID (page 4) closed back above its 200 DMA. The DJT (page 3) tested resistance and its intermediate term downtrend line but was unable to break above either of them. So although yesterday was a positive day, the current short term downtrends remain intact along with the various resistance levels.
- The data is slightly positive as a good portion of it has now returned back to neutral readings including the Equity Put/Call Ratio (.62), WST Ratio & Composite (56.3/137.2), OEX Put/Call Ratio (1.16) and the NYSE 1 and 21 day McClellan OB/OS Oscillators (-37.84/-35.35). The NASDAQ OB/OS remain oversold at -57.15 and -59.11 suggesting some bounce potential remains while the Total Put/Call Ratio (contrary indicator) shows the crowd still leaning to the put side at .93. So the data has no important warning signals and implies, in our opinion, a bit more near term lift potential remains.
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- The IBES forward 12 month earnings estimates for the SPX have seesawed back up to $125.68 after having dropped from a high of $126.21 a few weeks ago to $124.50. The recent rise in estimates may help the near term as well.
- However, we remain quite concerned for the intermediate term as major chart shifts have taken place while valuation remains high along with the levels of leverage being employed. Aside from yesterday, breadth remains a large concern as well.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.0% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.68 versus the 10 Year Treasury yield of 2.25%.
SPX: 2,058/2,102
DJI: 17,376/17/842
COMPQX; 5,020/5,144
DJT: 8,127/8,069
MID: 1,454/1,505
RUT: 1,210/1,245