All Indexes At New Closing Highs

Data Remains Mixed

Opinion

All of the indexes closed higher yesterday with positive internals as volumes rose on both the NYSE and NASDAQ. All seven of the indexes we follow closed at new closing highs. All of the short term uptrends remain intact. The data remains mixed. However, a few data points have darkened, but not enough to actually turn the scales negative. As such, in spite of some of our concerns, the charts and data continue to suggest a near term “neutral/positive” outlook remains appropriate at this point. Extended valuation of the SPX combined with excessive advisor bullish sentiment keeps our intermediate term outlook “neutral”.

• On the charts, virtually all of the seven equity indexes closed higher at new closing highs yesterday. Internals were positive on higher volumes leaving all of the near term uptrends intact. All of the stochastic levels are well into overbought territory but no actionable bearish crossovers have occurred at this point in time. So the charts remain positive.

• The data remains mixed with a few points turning a bit cautious. Most of the McClellan OB/OS Oscillators are neutral (All Exchange:+43.61/+44.4 NYSE:+38.33/+61.17 NASDAQ:+54.62/+37.74). However, the NASDQ 1 day level has now moved slightly into overbought territory while the NYSE 21 day is overbought. The new Investors Intelligence Bear/Bull Ratio (contrary indicator) continues to show advisors almost completely on the bullish side of the fence at 17.6/61.8, causing some concern. Yet the Total and Equity Put/Call Ratios are neutral at 0.84 and 0.58 respectively as the OEX Put/Call Ratio (smart money) finds the pros long calls and looking for more strength at 0.61. In our opinion, the data scales have not tilted enough to alter their neutral projections.

• In conclusion, forward valuation of the SPX based on forward 12 month IBES estimates at a 17.8 multiple implies there is no room for any mistakes while advisor psychology suggests a high degree of complacency. However, fighting the trend is not something we recommend. Until some evidence appears that a shift in trend is likely, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

• Forward 12-month earnings estimates for the SPX from IBES of $132.33 leave a 5.63 forward earnings yield on a 17.8 forward multiple, a decade high.
• SPX: 2,277/NA
• DJI: 19,946/NA
• Nasdaq: 5,576/NA
• DJT: 9,141/NA
• MID: 1,697/NA
• RTY: 1,377/1,357
• VALUA: 5,387/NA

All Indexes At New Closing Highs

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Written By: Guy S. Ortmann, CMT