There Is Little Room for Mistakes Now

 | May 17, 2017 | 9:39 AM EDT
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The bulk of the major equity indexes closed lower yesterday, with negative internals on the NYSE as volumes declined, while the Nasdaq saw mixed internals on higher volume.

There was no change within the current chart patterns, which remain mostly neutral while the data remain largely neutral as well.

As such, we have yet to see enough of a shift in the evidence to warrant a change in our near term "neutral" outlook for the major equity indexes. However, we would note that valuation is near historically high levels.

On the charts, all of the indexes closed lower yesterday, with the exception of the Nasdaq making another new closing high.

However, Nasdaq internals were less than appealing; decliners slightly outnumbered advances, while up volume swamped down volume -- yet another cautionary signal regarding debatable breadth within that index.

No support or resistance levels were violated on the other indexes, leaving them in sideways "rectangle" patterns, with only the Nasdaq in a short-term uptrend.

The data are mixed, but mostly neutral as well. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-3.98/+28.28 NYSE:-7.86/+35.19 NASDAQ:-1.29/+25.78), as are the Total Put/Call Ratio (0.79) and Open Insider Buy/Sell Ratio (48.2).

The Equity Put/Call Ratio and ISEE Sentiment Index (contrary indicators) are bearish at 0.54 and 11.28, as the crowd is enthusiastic and long calls while the OEX Put/Call Ratio finds the pros slightly weighted in calls at 0.97, with a minor bet on near-term strength occurring.

In conclusion, over the past several sessions, the status of the charts and data have continued to imply a "neutral" near-term outlook for the major equity indexes as most appropriate at this point in time.

That is unchanged. However, we would note that the forward P/E of the S&P 500 is back near historic highs, suggesting there is little room for mistakes within a highly selective market as displayed by the percentage of S&P 500 components trading above their 50-day moving averages barely over half, at 54.1%.

Forward 12 month earnings estimates for the SPX from IBES of $134.56 leave a 5.63% forward earnings yield on a 17.9x forward multiple, near a decade high.

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