SPX Makes New Closing Excessive


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Data Suggests Pause In Rally

All of the indexes closed higher Thursday with positive internals on the NYSE and NASDAQ as trading volumes rose on both exchanges form the prior session. Several technical improvements appeared on the charts with the SPX actually making a new closing high. However, the data dashboard is now flashing some cautionary signals suggesting a pause within the recent rally may be forthcoming. With that said, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

On the charts, all of the indexes closed higher yesterday with positive internals on higher trading volumes.

  • The SPX (page 2), DJI (page 2), NDX (page 3), DJT (page 4), MID (page 4) and RTY (page 5) all closed above their respective resistance levels with the SPX actually managing to post a new closing high.
  • The DJT’s action turned its short term trend to positive from neutral while the VALUA (page 5) close above its 50 DMA leaving only the DJT unable to achieve that goal at this point.
  • As such, all of the indexes are in short term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
  • We would note the COMPQX is at a high “volume at price” (VAP) level that may require further work to overcome as are the MID and VALUA.

Some of the data is suggesting a pause.

  • The 1 day McClellan OB/OS Oscillators are now overbought (All Exchange:+73.03 NYSE:+81.28 NASDAQ:+66.0) implying a lowering of fuel to propel higher prices over the near term.
  • On the other side, the Open Insider Buy/Sell Ratio (85.4), continued to see an increase in insider buying within the recent rally.
  • The % of SPX stocks above their 50 DMAs (67.5) and detrended Rydex Ratio (contrary indicator) at –0.34 are also neutral.
  • The AAII Bear/Bull Ratio (contrary indicator) finds bearish sentiment persisting at 38.67/24.0. We view this lack of enthusiasm on the part of the crowd as a positive.
  • The 12 month forward consensus earnings estimate from Bloomberg for the SPX stands at $170.53, leaving the forward p/e at a 17.3 multiple while the “rule of twenty” finds fair value at 18.0 suggesting the SPX may be slightly undervalued. This is based on the assumption that said estimates will hold. The shift in fair valuation has largely been due to the notable drop in the 10 Year Treasury yield to 2.0%. The earnings yield stands at 5.77%.

In conclusion, we are maintaining our near term “neutral/positive” outlook for the major equity indexes at this time with the caveat that some pause/retracement of progress is now more likely.

  • : 2,887/NA
  • : 26,019/26,801
  • : 7,849/8,049
  • : 7,533/7,788
  • : 10,280/10,485
  • : 1,893/1,948
  • : 1,533/1,573
  • VALUA: 6,068/6,228

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