More New Closing Highs Achieved
Guy S. Ortmann, CMT | Jul 21, 2017 10:08AM ET
The indexes closed mixed yesterday with some new closing highs achieved while one index broke support and is now in a near term downtrend. Internals were mixed on the NYSE while NASDAQ internals were positive. Volumes rose on the NYSE versus the prior session while NASDAQ volumes fell. Most of the near term chart trends remain positive while the data is turning more mixed. So while the charts remain fairly benign and should be respected from a strictly technical view, high valuation combined with extreme levels of margin debt suggest we are walking on a high wire act with appreciable downside risk present.
- On the charts, the indexes closed mixed with the SPX (page 2), COMPQX (page 3) and RTY (page 4) closing higher as the rest declined. New closing highs were achieved on the SPX, COMPQX and RTY. However, the DJT (page 3) closed below another near term support level that now shifts its short term trend from neutral to negative. The rest of the near term trends remain positive.
- The data has turned a bit more mixed as the NYSE 21 day McClellan OB/OS Oscillator is now overbought while the rest are still neutral (All Exchange:+36.95/+49.99 NYSE:+43.51/+66.1 NASDAQ:+31.92/+36.8). The Total Put/Call Ratio (0.74) and Open Insider Sentiment Index (42.5) are neutral as well while the Equity Put/Call Ratio (contrary indicator) is a bearish 0.53 as the crowd is buying calls. This is counterbalanced by the OEX Put/Call Ratio at 0.81 as the pros are long calls as well.
- In conclusion, while the charts, with the exception of the DJT, have yet to yield notable sell signals and should be respected, two issues continue to haunt us suggesting market risk is quite high. Forward valuation of the SPX is now the most expensive it has been in over 15 years with a 18.5 forward multiple based on Bloomberg 12 month forward earnings estimates for the SPX of 134.01. Secondly, margin debt is frighteningly high as seen in the chart on page 9 from Hussman Funds. The chart shows “the sum of cash balances in investor cash accounts, plus cash balances in margin accounts, minus the margin debt of investors.” As can be seen on the chart, margin exposure is well in excess of levels seen during both the .com and real estate bubbles prior to major market corrections. Thus valuation and margin suggest risk is high versus reward.
- Forward 12-month earnings estimates for the SPX from IBES of $134.01 leave a 5.4 forward earnings yield on a 18.46 forward multiple, over a decade high.
- SPX: 2,429/NA
- DJI: 21,305/NA
- NASDAQ: 6,258/NA
- DJT: 9,428/9,727
- MID: 1,746/NA
- Russell: 1,416/NA
- VALUA: 5,565/NA
More New Closing Highs Achieved
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