Uptrends Remain Intact

SPX Forward 12 Month Earnings Estimates Rise

Opinion

Most of the indexes closed lower yesterday, the exception being the DJT, with mixed internals on the NYSE and negative internals on the NASDAQ. Volumes rose on the NYSE and declined on the NASDAQ. No technical events of import were registered on the charts as all support levels and uptrends remained intact. The data remains mostly neutral with a couple of cautionary signals appearing. Nonetheless, we have yet to see enough evidence to shift from our current near term outlook of “neutral/positive”. And although IBES has raised their forward earnings estimates for the SPX, valuation remains rich enough to keep our intermediate term view at “neutral”.

• On the charts the only index to post gains yesterday was the DJT (page 3) following on its technical break above resistance and long term downtrend line as discussed in yesterday’s comments. None of the declines on the other indexes were sufficient to violate either support levels or near term uptrend lines. Most of the stochastic levels remain overbought but have yet to generate cautionary bearish crossover signals. As such, the chart positive trends remain intact with positive advance decline lines. The one exception in that regard is the % of SPX stocks trading above their 50 DMAs (page 9) that remains in a downtrend and having made a lower low.

• The data remains mostly neutral including the McClellan OB/OS Oscillators (All Exchange:+6.66/+31.02 NYSE:+1.97/+36.92 NASDAQ:+11.29/+27.1), the Equity Put/Call Ratio (0.61), AAII Bear/Bull Ratio (28.48/29.75) and Gambill Insider Buy/Sell Ratio (8.6). The Gambill level, while still in neutral territory, has seen a pickup in insider selling. Caution signals are coming from the WST Ratio/Composite at a bearish 72.8/153.8 and OEX Put/Call Ratio (smart money) with the pros still weighted to puts at 1.44.

• Aside from the technical picture, we would note IBES has raised its forward 12 month earnings estimates for the SPX from $127.22 to $128.52, taking some pressure off of valuation. However, said valuation remains historically rich and keeps our intermediate term view at “neutral. For the near term, until we see enough of a shift in the weight of the overall evidence, we are keeping our short term outlook for the major equity indexes at “neutral/positive”.

• Forward 12-month earnings estimates for the SPX from IBES of $128.52 leave a 5.89% forward earnings yield on a 17.0 forward multiple.
• SPX: 2,160/2,194
• DJI: 18,374/18,637
• NASDAQ: 5,160/NA
• DJT: 7,917/8,115
• MID: 1,534/NA
• Russell: 1,221/1,266
• VALUA: 4,904/NA

Uptrends Remain Intact

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Written By: Guy S. Ortmann, CMT