Data Mixed As Well
Opinion: Our next report will be issued on Monday, August, 28th. The indexes closed mostly higher yesterday with the one exception of the RTY. Internals were positive on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. However, no resistance levels were violated on the charts, leaving their near term trends mixed. The data remains mixed as well. In spite of the bounce from last Thursday’s declines, we continue to be of the opinion that risk outweighs potential reward as valuation remains near historic highs, margin levels are excessive, investment advisor complacency persists and the charts show a weakening of internal breadth.
- On the charts, the only index to close lower yesterday was the RTY (page 4) as the rest posted minor gains. All closed near their intraday lows as initial enthusiasm gave way to sellers near the close. The near term trends of the indexes are mixed with only the DJI (page 2) in an uptrend, the SPX (page 2), COMPQX (page 3) and DJT (page 3) neutral with the MID (page 4), RTY (page 4) and VALUA (page 5) in downtrends. The cumulative advance/decline lines for the All Exchange and NASDAQ remain negative and below their 50 DMAs with the NYSE’s neutral and above its 50 DMA. In our opinion, the mix of the chart trends and cumulative A/Ds describe a potentially dangerous narrowing of market breadth.
- The data is mixed. All of the McClellan OB/OS Oscillators are back in neutral territory (All Exchange:-40.45/-24.43 NYSE:-46.5/-90.4 NASDAQ:-34.75/-37.93) as is the Equity Put/Call Ratio at 0.62. And while the Total P/C (contrary indicator) finds the crowd weighted in puts at 0.96, the OEX P/C is a very bearish 2.06 as the pros are now heavily weighted in outs and expect weakness.
- In conclusion, SPX forward valuation remains near historic highs, even with the recent lift I estimates, at 18.0 as does margin exposure (up 20.5% y/y) and investment advisor complacency via the Investors Intelligence Bear/Bull Ratio at 17.0/57.5. When combined with what we perceive to be a notable narrowing of market breadth, we continue to view market risk as high versus potential reward.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56 forward earnings yield on a 18.0 forward multiple, near a decade high.
SPX: 2,434/2,467
DJI: 21,640/21,992
COMPQX; 6,192/6,346
DJT: 9,118/9,422
MID: 1,701/1,731
RTY: 1,368/1,403
VALUA: 5,425/5,519