Valuation Back To Prior Peak
Opinion
All of the indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session. Some new closing highs were achieved on the charts, leaving all of the prior near term trends intact. The data is yielding a neutral projection while valuation has returned to its prior peak levels. Given valuation, we suspect some headwinds for the indexes may temper near term progress. Thus we remain of the opinion that the index trends should be respected for their individual merits as discussed below.
- On the charts, all of the indexes closed higher Friday with positive internals. The SPX (page 2), DJI (page 2) and DJT (page 4) all posted new closing highs. The NDX (page 3) traded above resistance on an intraday basis but was unable to close in that condition, leaving it at resistance and in its current near term neutral pattern. The RTY (page 5) trend remains neutral s well while the rest of the indexes are still in their short term uptrends.
- The data is mixed leaving a neutral projection. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-1.48/+17.0 NYSE:-2.12/+32.51 NASDAQ:-11.61/+15.07). The Equity Put/Call Ratio is a neutral 0.58 along with the Open Insider Buy/Sell Ratio at 35.2. The Total and OEX Put/Call Ratios are counterbalancing at 0.94 and 2.12 respectively.
- Finally, we would note that the recent bounce in the indexes has pushed the forward valuation of the SPX back up to its prior peak of a few weeks ago to an 18.9 multiple of forward 12 month consensus earnings estimates via Bloomberg. We suspect that valuation may put some proverbial salt on the tail of the recent rally.
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- In conclusion, while valuation may become an issue and we have yet to see a notable improvement in overall market breadth that is less than positive, we remain of the opinion that the current varying near term trends of the indexes should be respected on their own merit until proven otherwise.