SPX Valuation Spread Remains Tight
The indexes closed mixed Tuesday with positive internals on the NYSE while those on the NASDAQ were negative. Volumes rose on both exchanges from the prior session. The SPX did manage to make another new closing high but the short term trends are unchanged with a mix of neutral and positive. Throughout the recent rally, the data has stayed fairly benign and remains so with the exceptions of investment advisors creeping into overly bullish sentiment while the spread between the SPX forward 12 month p/e and fair value continues to contract. Nonetheless, at this stage we do not see enough of a shift in the weight of the evidence to formally alter our near term “neutral/positive for the major equity indexes with the caveat that some individual names with elevated PEGs being vulnerable.
On the charts, the SPX (page 2), DJI (page 3) and DJT (page 4) closed higher yesterday as the rest declined.
- The only technical event of note was the SPX posting yet another new closing high.
- The bulk of the indexes managed to close well above their intraday lows.
- The near term trends are unchanged with the DJI, DJT and VALUA (page 5) neutral and the rest positive.
- The cumulative advance/decline lines for the All Exchange, NSYE and NASDAQ remain positive and above their 50 DMAs.
The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-2.39 NYSE:-4.11 NASDAQ:-0.71).
- The Open Insider Buy/Sell Ratio remains neutral at 50.3 as is the % of SPX stocks trading above their 50 DMAs with a 71.7% reading.
- Crowd sentiment is relatively benign with the detrened Rydex Ratio (0.68) and new AAII Bear/Bull Ratio (20.33/36.67) remaining neutral.
- However, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows investment advisors remain slightly overly bullish at 18.4/53.4.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX now stands at $171.37, leaving the forward p/e at a 17.2 multiple while the “rule of twenty” finds fair value at 17.5. As such, the SPX is essentially at fair value by this metric.
- The earnings yield stands at 5.82%.
In conclusion, we are maintaining our near term market outlook at “neutral/positive”. However, with the SPX essentially at fair value, investment advisors a bit too bullish and some market leading stocks at lofty valuations ranging for 2 to 4 times their projected 5 year growth rates taking it on the chin should they not excite investors with earnings reports, progress may become more muted.
- SPX: 2,836/NA
- DJI: 26,079/26,560
- COMPQX; 7,727/NA
- NDX: 7,587/NA
- DJT: 10,790/11,268
- MID: 1,942/1,996
- RTY: 1,559/1,672
- VALUA: 6,223/6,405