S&P 500's Valuation Hits 15-Year High; Should You Be Concerned?

 | Oct 06, 2017 | 11:00 AM EDT
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The combination of an extended S&P 500 forward valuation and charts that are somewhat extended could have some surprising implications. Should some consolidation/retracement of the recent rally occur, it may be more notable than the crowd expects.

Forward 12-month earnings estimates for the S&P 500 from Bloomberg of $137.37 per share leave a 5.56% forward earnings yield on an 18.6x forward P/E multiple, a new 15-year high. Meanwhile, several of the charts are extended above their support levels and 50-day moving averages. 

Despite this, we believe the near-term uptrends of the indices should continue to be respected until proven otherwise.

Source: Worden

Another day and more new closing highs.

The majority of the indices (see S&P 500 chart, above) closed higher Thursday with the exception of the Dow Jones Transports. Internals were positive on the NYSE and Nasdaq while NYSE volumes rose from the prior session as Nasdaq levels dipped. New closing highs were achieved on all but the Transports.

Source: Worden

On the charts, the Nasdaq 100 (see above) finally penetrated resistance. All of the short-term uptrends for the indices remain intact as do the cumulative advance/decline lines for the NYSE, Nasdaq and All Exchange. As such, no sell signals currently exist. However, as mentioned, several of the charts are extended above their support levels and 50-day moving averages, suggesting should some consolidation occur, it might prove more than would normally be expected. There is some downside risk.

The data has moderated slightly. The All Exchange and NYSE 1-day McClellan OB/OS Oscillators remain neutral with the rest overbought (All Exchange:+47.09/+84.91 NYSE:+37.34/+89.17 NASDAQ:+60.76/+88.59).

The Open Insider Buy/Sell Ratio moved back to neutral from bearish with a current 32.3 reading as the Equity and Total Put/Call Ratios are neutral as well at 0.69 and 0.84, respectively. The OEX Put/Call Ratio has turned mildly bullish at 0.97 as the pros have traded in their puts for calls.

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