SPX Forward 12 Month Earnings Estimates Dip
Opinion: The indexes closed mostly lower yesterday and although losses on the large-cap indexes were fractional, internals were very poor, echoing the market dynamics seen prior to the last correction. The 1 day McClellan OB/OS Oscillators have moderated to “neutral” but other data points remain of some concern. Additionally, forward SPX 12 month earnings estimates from IBES have been trimmed, elevating valuation back to troublesome levels. As such, we remain near term “neutral/negative” but “neutral/positive” for the intermediate term as the longer breadth trend remains positive for now.
- On the charts, only the DJI (page 2) managed to post gains yesterday as the rest declined. Internals were quite negative as the large-cap indexes masked what we see as a much weaker structure than those indexes would imply. This behavior is very reminiscent of the market dynamics seen leading up to the last correction as internals deteriorated notably while the SPX and DJI acted as distractions from the real story. One day is too brief a period to extract a high confidence call. However, it does, in our opinion, cast a shadow over short term market prospects. No support or resistance levels were violated but the RUT (page 4) did trigger a “bearish stochastic crossover” signal.
- As noted recently, minor negative activity in the markets has had notable impact on reducing the McClellan 1 day OB/OS Oscillator levels. That was the case again yesterday as all of the 1 day OB/OS are now neutral (All Exchange:+20.75 NYSE:+26.42 NASDAQ:+15.02). However, the 21 day readings remain very cautionary (All Exchange:+105.42 NYSE:+134.62 NASDAQ:+77.63). The WST Ratio and its Composite remain bearish as well at 67.4 and 187.1 along with the Rydex Ratio (contrary indicator) at 53.1 showing the leveraged ETF traders heavily leveraged long. This is being counterbalanced to some degree by the OEX Put/Call Ratio (smart money) that remains a bullish 0.78. As such, we remain of the opinion that the data skills are still tilted to the cautionary side for the near term.
- We would also note that IBES has trimmed its forward 12 month earnings estimates for the SPX from $123.57 to $123.27 resulting in a forward p/e of 16.4 that is once again approaching historically high levels and implying some valuation risk returning.
- Forward 12 month earnings estimates for the SPX from IBES of $123.27 leave a 6.11% forward earnings yield on a 16.4 forward multiple.
SPX: 1,971/2,024
DJI: 16,811/17,258
COMPQX; 4,612/4,787
DJT: 7,411/7,662
MID: 1,367/1,415
RUT: 1,035/1,107
VALUA: 4,320/4,457