Volumes Decline On Friday’s Advance
Opinion: All of the indexes closed higher Friday with positive internals as volumes declined from the prior session. All closed at or near their intraday highs. No technical events of import were generated. The data remains a mixture of neutral and negative readings while the forward valuation for the SPX is back at a decade high. As such, we continue to have a near term “neutral/negative” outlook for the major indexes given the extent of the recent gains, violations of short term uptrend lines and various data points implying some normal retracement of said gains leaves the current risk/reward less than favorable, in spite of the lack of obvious technical sell signals.
On the charts, all of the indexes closed higher Friday with positive internals. However, volumes declined notably from the prior session. The drops in trading volume on up days recently are suggesting, in our opinion, the buying “fuel” that has lifted the indexes has seen depletion worthy of note. While not a blatant negative, it does add to our discomfort. No technical signals of import were generated as a result of the day’s trade. All of the stochastic levels remain overbought but have yet to give bearish crossover signals.
The data remains a mix of neutral and negative readings. All of the 1 day McClellan OB /OS Oscillators are neutral (All Exchange: +26.76 NYSE:+25.59 NASDAQ:+31.08). Both the Total and Equity Put/Call Ratios (contrary indicators) are neutral at 0.82 and 0.59 respectively. While “neutral”, they do show a shift by the crowd away from their fearful put buying as they become more complacent due to the recent market strength. The Gambill Insider Buy/Sell Ratio remains neutral as well at 9.2.
However, the 21 day McClellan OB/OS Oscillators are overbought with the NYSE exceptionally so (All Exchange:+94.72 NYSE:+115.54 NASDAQ:+79.09) while the OEX Put/Call Ratio (smart money) still finds the pros long puts and expecting some weakness at 1.74. Finally, the forward 12 month p/e for the SPX at a decade high of 17.2 suggests stocks are historically expensive currently.
In conclusion, when viewing the charts and data in context with the recent sizable moves in the indexes, we are of the opinion that the current setup offers poor risk/reward over the near term due to the reasonable probability of some retracement of recent gains.
Forward 12 month earnings estimates for the SPX from IBES of $126.29 leave a 5.81% forward earnings yield on a 17.2 forward multiple.
SPX: 2,119/NA
DJI: 18,026/NA
COMPQX: 4,971/5,104
DJT: 7,696/8,017
MID: 1,518/1,553
RUT: 1,177/1,215
VALUA: 4,753/4,895