Data Shows Some Yellow Flags
Opinion
The bulk of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as NYSE volumes dipped from the prior session while NASDAQ levels rose. All of the indexes closed at new highs with the exception of the DJI closing lower on the day. The data is starting to show some yellow flags while forward 12 month earnings estimates via Bloomberg were raised, taking some pressure off of our valuation concerns. We remain of the opinion that the current near term uptrends of the indexes should be respected until proven otherwise.
- On the charts, only the DJI (page 2) closed lower in the day as the rest advanced to new closing highs. All of the near term uptrends remain intact as do those of the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. No sell signals have been registered at this point in time on the charts, in our opinion.
- The data is now starting to show some cautionary signals. The All Exchange and NYSE 21 day McClellan OB/OS Oscillators have moved into overbought territory for the first time in several sessions while the rest remain neutral (All Exchange:+39.34/+54.84 NYSE:+41.74/+70.26 NASDAQ:+35.68/+41.28). The Total Put/Call Ratio (contrary indicator) finds the crowd long calls at a bearish 0.65 while sentiment data has deteriorated showing overly bullish sentiment on both the AAII Bear/Bull Ratio at 20.0/53.76 and Investors Intelligence Bear/Bull Ratio at 15.2/61.9. The rest of the data remains neutral.
- Some pressure has been taken off of our valuation concerns as forward 12-month earnings estimates for the SPX via Bloomberg were raised from $140.60 to $148.93, dropping the forward multiple to 18.5 from 19.4.
- In conclusion, while we remain of the opinion that the near term uptrends of the indexes should continue to be respected until proven otherwise and valuation has moderated somewhat, some of the data suggests further progress may be a bit tougher to achieve over the near term.
- Forward 12-month earnings estimates for the SPX from Bloomberg of $148.93 leave a 5.4 forward earnings yield on a 18.5 forward multiple.
- SPX: 2,671/NA
- DJI: 24,678/NA
- NASDAQ: 6,890/NA
- NDX: 6,400/NA
- DJT: 10,582/NA
- MID: 1,893/NA
- Russell: 1,525/NA
- VALUA: 6,072/NA