Index Charts Split
Guy S. Ortmann, CMT | Oct 02, 2018 11:13AM ET
Forward SPX Earnings Estimates Lift
The indexes closed mixed Monday with mixed internals on the NYSE while NASAQ internals were negative. Overall trading volume dipped slightly from the prior session. Some of the charts saw further technical damage resulting in a picture showing the indexes are now split, revealing a bifurcation in the market. This is not considered healthy for market prospects. The data is unavailable this morning with the exception of SPX forward earnings estimates discussed below. We are left with the charts as the primary source for this exercise. As such, we are maintaining our near term “neutral” outlook for the major equity indexes at this time.
- On the charts, the indexes closed mixed yesterday with negative breadth but positive up/down volume on the NYSE while the NASDAQ internals were negative. Overall volumes dipped from the prior session. Our net interpretation is the performance was a bit troubling as the SPX (page 2), DJI (page 2), NDX (page 3) and DJT (page 4) advanced but did so with notably negative breadth suggesting an increasingly narrow base. The COMPQX (page 3) closed lower as did the MID (page 4), RTY (page 5) and VALUA (page 5). In fact, the MID, RTY and VALUA all broke below support levels as the MID and VALUA also failed their 50 DMAs. All three of them are now in downtrends with the SPX and DJI in uptrends and the COMPQX, NDX and DJT neutral. What we find is a split market with the underlying breadth deteriorating as the more popular indexes advance as the rest decline. This is not a healthy structure.
- The data is unavailable this morning. However, we would note that valuation has moderated as consensus forward 12 month earnings estimates for the SPX via Bloomberg were raised to $172.84 from $168.48, a sizable lift, leaving the forward 12 month p/e for the SPX at 16.9 versus the “rule of 20” implied fair value of a 16.9 multiple. The “earnings yield” stands at 5.91%.
- In conclusion, we find ourselves riding the fence to some degree as market breadth has deteriorated to the point of raising some concern while forward earnings estimates for the SPX have picked up some steam. The net result is we believe it is appropriate to maintain our current “neutral” outlook for the major equity indexes at this time.
- SPX: 2,889/NA
- DJI: 26,127/NA
- NASDAQ: 7,891/8,108
- NDX: 7,444/7,658
- DJT: 11,255/11,494
- MID: 2,000/2,053
- Russell: 1,670/1,726
- VALUA: 6,468/6,547
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