Intraday Rallies Fail
SPX Forward 12 Month EPS Estimates Lowered
Opinion: Although no support or resistance levels were violated on a closing basis yesterday, the notable intraday rallies failed with all of the indexes closing lower on the day on increasing volumes. As there is no strong supportive evidence coming from the data, the near term neutral outlook has turned more cautionary. The combination of active insider selling with SPX forward estimates declining again leaves us still cautionary on the intermediate term.
- On the charts, yesterday’s gyrations saw an unusual performance as the majority of the indexes tested both their resistance and support levels on an intraday basis. The final result was negative as all of the indexes closed lower with the SPX (page 2) closing below its short term uptrend line from the October lows along with the DJT (page 3). No support levels were violated but the complete give up of the intraday gains is negative in our view. Trading volumes increased with negative internals adding to the poor performance.
- The data remains largely neutral. The McClellan OB/OS Oscillators are all neutral (NYSE:-23.98/+18.16 NASDAQ:-31.25/-6.06) giving no oversold signals. Both the Equity and OEX Put/Call Ratios are neutral as well along with the WST Ratio and its Composite (40.1/108.8). As such, there appears to be little evidence suggestive of a bounce.
- Sentiment remains disturbing as the Gambill Insider Buy/Sell Ratio shows insiders as remaining active sellers at 6.1 while the leveraged ETF traders have pressed their leveraged long bets close to a new extended high of 68.7 on the Rydex Ratio (contrary indicator). This split between insiders and the crowd remains troublesome, in our view.
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- Finally after raising forward 12 month earnings estimates for the SPX a few days ago, First Call has now lowered them again from $126.66 to $126.07. We view this as another cloud overhanging intermediate term prospects for the markets in general.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.23% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.07 versus the US 10 Year Treasury yield of 1.89%.
SPX: 2,002/2,061
Dow Jones 30: 17,578/17,964
NASDAQ Composite: 4,650/4,733
Dow Jones Transportation: 8,656/8,995
S&P Midcap 400:1,424/1,458
Russell 2000:1,156/1,199