Data Mostly Neutral
Opinion: The bulk of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as both indexes saw volumes drop from the prior session. No support levels or uptrend lines were violated, leaving the charts intact. The data remains a mixed bag but mostly neutral in tone. As such, we still have yet to see enough evidence presented to alter our near term “neutral/positive” outlook for the major equity indexes in spite of our concerns regarding valuation and investment advisor complacency.
· On the charts, all of the indexes closed lower yesterday with the exception of the DJI (page 2) posting a new closing high. Declines were modest as internals were negative on both exchanges as volumes dipped from the prior session. While the DJT (page 3) did test support on an intraday basis, the resulting chart action for the indexes left all of the short term uptrend lines and support levels intact. Advance/decline lines remain positive on the NYSE and All Exchange while the NASDAQ A/D has turned neutral. So the charts have yet to flash actionable warning signals.
· The data remains mixed but largely neutral. The 21 day All Exchange and NYSE McClellan OB/OS Oscillators remain overbought as the rest are neutral (All Exchange:+20.6/+55.84 NYSE:+9.91/+65.26 NASDAQ:+16.74/+43.88). The Equity and OEX Put/Call Ratios are neutral at 0.6 and 0.94 respectively while the Total Put/Call Ratio (contrary indicator) is a mildly bullish 0.89. The Gambill Insider Buy/Sell Ratio did decline but remains neutral at 9.1. A reading at or below 8.0 would turn it bearish. So the data, as a whole, remains neutral.
· Repeating our concerns regarding valuation and advisor sentiment, the forward p/e of the SPX based on forward 12 month earnings estimates form IBES remains at a 12 year high of 17.9, suggesting stocks are far from cheap, while investment advisors appear to have no concern for risk with a 17.5/61.2 Investors Intelligence Bear/Bull Ratio (contrary indicator). The combination of these issues suggests to us that, in spite of the charts and data, some degree of restraint should be exercised regarding market optimism.
· Forward 12 month earnings estimates for the SPX from IBES of $132.21 leave a 5.6 forward earnings yield on a 17.9 forward multiple, a decade high.
SPX: 2,277/NA
DJI: 19,946/NA
COMPQX; 5,670/NA
DJT: 9,411/NA
MID: 1,697/NA
RTY: 1,377/1,357
VALUA: 5,387/NA