SPX Forward 12 Month Earnings Estimates Reduced
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose from the prior session. All closed at or near their intraday highs. Some positive events took place on the charts while the data remains largely neutral. As such, our near term outlook has shifted back to “neutral/positive”. Breadth remains encouraging for the intermediate term but valuation is being further stretched as forward earnings estimates for the SPX have been reduced. Our intermediate term outlook remains “neutral/positive” largely due to improved market breadth. The U.S. Dollar saw further notable weakness yesterday as it approaches what we see as an extremely important support level discussed below.
- On the charts, all of the indexes closed higher with positive internals on higher volume while closing at or near their intraday highs. The MID (page 4) closed above resistance and its 200 DMA while the DJT (page 3) closed above its intermediate term downtrend line. The COMPQX (page 3) closed above its 150 DMA. The net result, in our opinion, is the charts appear to be attempting a breakout from their recent sideways consolidation patterns.
- We would also note the action in the U.S. Dollar as measured by the UUP ETF (page 9). The Dollar came under significant selling pressure yesterday after failing to penetrate resistance and now looks like it will test support. We regard that support as critical for the Dollar given its long duration. Should support break, we could see notable weakness in the Dollar that would likely benefit commodity prices.
- The data remains almost entirely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:+26.69 NYSE:+34.96 NASDAQ:+21.73). The Equity Put/Call Ratio is also neutral at 0.61 along with a 21.0 Gambill Insider Buy/Sell Ratio. Only the OEX Put/Call Ratio (smart money) remains cautionary at 1.6 as the pros remain long puts.
- While we remain “neutral/positive” for both the near and intermediate term outlooks for the indexes, we would note IBES has once again reduced its forward 12 month earnings estimates for the SPX, this time from $123.12 to $122.83. We need to see some lift in estimates to moderate our concerns of the SPX approaching historically high valuation levels.
- Forward 12 month earnings estimates for the SPX from IBES of $122.83 leave a 5.98% forward earnings yield on a 16.7 forward multiple.
SPX: 2,005/2,076
DJI: 17,009/17,712
COMPQX; 4,715/4,924
DJT: 7,536/8,150
MID: 1,404/1,446
RUT: 1,065/1,109
VALUA: 4,320/4,586