Psychology Sends the Only Negative Stock Market Signals

 | Jan 12, 2018 | 9:39 AM EST
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Sometimes, being too bullish can be a negative signal. Both the AAII Bear/Bull Ratio (20.0/53.67) and Investors Intelligence Bear/Bull Ratio (15.2/61.9) show an excess of such sentiment, even after record highs.

All of the equity indexes we follow made new closing highs on Thursday, with broadly positive internals on the NYSE and Nasdaq, as NYSE volumes rose from the prior session while Nasdaq volumes dipped.

As such, all of the short-term chart uptrends remain intact, while the data remain largely neutral with the exception of psychology. Forward 12-month consensus earnings estimates for the SPX rose again, keeping the forward multiple essentially unchanged in spite of yesterday's gains.

As such, we have yet to see enough evidence to cause a shift from our current opinion that the near-term trends of the various indexes should continue to be respected until proven otherwise.

On the charts, all of the indexes closed higher yesterday, with positive internals leaving all at new closing highs. All closed at or near their intraday highs, while the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq remain positive and above their 50-day moving averages.

The data remain largely neutral. Only the 21-day NYSE McClellan OB/OS Oscillator moved to overbought territory, with the rest neutral (All Exchange:+39.77/+35.18 NYSE:-6.33/+58.76 NASDAQ:+49.53/+43.84).

The Equity, Total and OEX Put/Call Ratios are neutral at 0.72, 0.65 and 1.0 respectively, as is the OpenInsider Buy/Sell Ratio at 28.7.

The only negative signals are coming from psychology, which is showing an excess of bullish sentiment on both the AAII Bear/Bull Ratio (20.0/53.67) and Investors Intelligence Bear/Bull Ratio (15.2/61.9).

Valuation was little changed as a result of yesterday's gains, as consensus forward 12-month earnings estimates for the SPX from Bloomberg rose again, this time from $149.97 to $150.22, leaving an 18.4 forward multiple.

In conclusion, while psychology poses a possible issue, the charts and data continue to suggest the current near-term trends of the equity indexes should continue to be respected until proven otherwise, in our opinion.

Forward 12-month earnings estimates for the SPX from Bloomberg were raised to $150.22, leaving a 5.4 forward earnings yield on a 18.4 forward multiple.

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