Opinion: The indexes closed little changed yesterday with the exception of the DJT. Internals were positive while volumes were average. All of the current trading ranges remain intact. The data remains essentially neutral while the forward earnings estimates for the S&P 500 have been raised offering support. However, the action in the US dollar, U.S. 10-Year Treasury Yield and DJT remain a concern for the intermediate term, in our opinion.
- On the charts, yesterday was largely a non-event with the exception of the DJT (page 3) which made another lower low and is now at what we would view as having been very important technical support since last October. It has not yet violated, and may not. However should a violation take place, as we view it as the leading index, it would cast another cloud over the markets, in our view.
- What may have been of greater technical importance yesterday was the action in the dollar and 10 Year Treasury. The dollar as measured by the (NYSE:UUP) ETF continued its recent slide and closed below very high volume support. It implies further weakness ahead. As well, the yield on the 10 Year Treasury broke above high volume resistance that had been in place since last December. It suggests higher bond yields ahead. Both of these have historically posed problems for the equity markets.
- So although the index charts remain neutral in nature, as does the bulk of the data, we find it difficult to turn a blind eye to the action in the DJT, U.S. dollar and 10 Year Treasury that are casting shadows over the intermediate term outlook.
- A fundamental positive has come in the form of IBES notably increasing its 12 month forward earnings estimates for the SPX from $122.80 to $124.28. However, that still leaves the 12 month SPX forward p/e near a decade high at 16.9X and, in our opinion, stretched.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.92% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.28 versus the 10 Year Treasury yield of 2.28%.
SPX: 2,073/2,121
DJI: 17,827/18,205
NSDQ; 4,919/5,028
DJT: 8,541/8,802
MID: 1,495/1,523
RUT: 1,206/1,252