COMPQX Closes Above Resistance
Opinion: The indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes dipped on the NYSE and rose on the NASDAQ. Several short term downtrend lines were violated while the COMPQX closed above resistance. The data remains largely neutral. As such, the near term outlook now looks a bit less onerous. However, valuation, margin levels and advisor complacency continue to cause us concern, implying overall risk outweighs potential reward, in our view.
- On the charts, all of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ. The SPX (page 2), COMPQX (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) closed above their short term downtrend lines, turning said trends to neutral from negative. As well, the SPX closed back above its 50 DMA while the COMPQX closed above near term resistance. The cumulative advance/decline lines for the All Exchange and COMPQX turned positive and above their 50 DMAs. So there were several improvements. However, we would note that while the SPX is only 1% below its all-time high, less than half of its components (46.5%) are above their 50 DMAs. We believe this describes the notable selectivity of the market’s push. Not all boats are rising with the tide.
- The bulk of the data remains neutral including all of the McClellan OB/OS Oscillators (All Exchange:+27.84/-24.67 NYSE:+17.38/-19.8 NASDAQ:+38.35/-28.73). The Total, Equity and OEX Put/Call Ratios remain neutral as well at 0.83, 0.57 and 1.06 respectively as is the Open Insider Buy/Sell Ratio at 59.0. The most recent AAII Bear/Bull Ratio is a neutral 34.0/31.67 while the Investors Intelli8gence Bear/Bull Ratio (contrary indicator) has moderated a bit but remains bearish at 18.3/48.1.
- In conclusion, the improvement in the charts and general lack of data warning signals suggest some further lift is possible over the near term. However, valuation staying near historic highs, extensive margin debt levels, up 15.9% y/y, and advisor complacency remain disconcerting. The selectivity of the advance is bothersome as well, in our opinion.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56 forward earnings yield on a 17.9 forward multiple, near a decade high.
SPX: 2,420/2,467
DJI: 21,640/22,019
NASDAQ: 6,192/6,387
DJT: 9,118/9,422
MID: 1,701/1,731
RTY: 1,348/1,400
VALUA: 5,425/5,519