• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Markets

The S&P's Valuation Is Not at a Premium for the First Time In Almost 2 Years

Can the charts get in line with the data?.
By GUY ORTMANN
May 11, 2022 | 10:34 AM EDT

Despite the market's recent path, it continues to send some strong positive signals, particularly in regard to investor sentiment. What's more, the forward 12-month P/E for the S&P 500 is now at ballpark fair value after having traded at a premium since June 2020.

Still, while the data is in the green zone, the charts have yet to alter their downtrends or violate resistance that we view as a requirement to be more positive in our near-term outlook while long term investors, in our view, could do some selective buying.

Let's take a look at the index charts and market data.

On the Charts

Source: Worden

The major equity indexes closed mixed Tuesday with the S&P 500, Nasdaq Composite, Nasdaq 100 and Russell 2000 posting gains as the rest declined.

Internals were mostly negative for the NYSE and Nasdaq except for the Nasdaq showing positive up/down volume. However, as all closed near the midpoint of the session, no technical improvements were registered, leaving all in near-term negative trends and below their 50-day moving averages.

Cumulative market breadth remains negative on the All Exchange, NYSE and Nasdaq while the oversold stochastic levels on the charts have yet to initiate bullish crossover signals.

The Data Continue to Send Some Very Bullish Signals

The McClellan 1-Day Overbought/Oversold oscillators remain oversold and still suggest a bounce (All Exchange: -85.26 NYSE: -91.55 Nasdaq: -80.88).

The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) dropped to 17% and is on a bullish signal and at its lowest level in two years.

The Open Insider Buy/Sell Ratio dipped to 73.7%, remaining neutral.

We reiterate the most encouraging data factor for the near-term, in our view, remains the sentiment data.

The detrended Rydex Ratio (contrarian indicator) remains very bullish at -2.23. As its chart below shows, only five times in the past decade have the ETF traders been so heavily leveraged short, all of which were followed by rallies.

The detrended Rydex Ratio is -2.23 (very bullish)

Meanwhile, this week's AAII Bear/Bull Ratio (contrarian indicator) is at a very bullish 2.75 and at a 20-year peak matched only by the 2008-2009 financial crisis as investment banks collapsed.

Also, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is on a very bullish signal and at a decade peak of fear at 39.3/30.9. Crowd fear is at very extreme levels.

S&P 500's Valuation Is Not at a Premium for First Time in 2 Years

The forward 12-month consensus earnings estimate from Bloomberg for the S&P 500 slipped to $235.56 per share. Thus, the S&P's forward P/E multiple is 17.0x as is the "rule of 20" finding ballpark fair value at 17.0x. This is the first time since June 2020 that the forward P/E for the S&P has not been at a premium.

The S&P's forward earnings yield is 5.89%.

The 10-Year Treasury yield closed lower at 2.99%. We view support as 2.5% and resistance at 3.2%.

Our Near-Term Market Outlook

While the data are suggesting a positive turn in market action, the charts have yet to get in line. In our opinion, chart and breadth improvement are necessary to become more optimistic.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Indexes | Investing | Markets | Technical Analysis | Treasury Bonds | U.S. Equity

More from Markets

The Potential for a Market Correction Is Increasing

Guy Ortmann
Jun 9, 2023 10:00 AM EDT

Here's why we think a more defensive approach is appropriate now.

Japan's Stocks Weather Bumpy Week to Star in Asia Again

Alex Frew McMillan
Jun 9, 2023 8:50 AM EDT

Japanese equities appear to be moving "for no discernible reason" but have rebounded after two sharp days of losses and look set to sustain their gains.

5 Reasons to Get More Defensive Now

Guy Ortmann
Jun 8, 2023 10:20 AM EDT

The potential for a correction appears to be on the rise.

Small-Caps Scream Higher, Canada Smokes & Hikes, Dour Druckenmiller, Trading AMD

Stephen Guilfoyle
Jun 8, 2023 7:21 AM EDT

U.S. investors, while fully expecting a 'skip' by the FOMC next week are starting to understand that a skip or even a pause does not necessarily mean an end to the policy tightening cycle or a change in trajectory.

Did You Miss the Rebound From Last Fall's Nadir? You Are Not Alone

Paul Price
Jun 7, 2023 1:30 PM EDT

This stock remains my single largest personal dollar holding. I averaged down multiple times over the past two years waiting for the moment we are seeing now. It's not too late to get onboard.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:45 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Bulls, Bears, and Market Predictions
  • 11:31 AM EDT CHRIS VERSACE

    We're Adding to a Position on Weakness

    Check out what's going on in the Action Alerts PLU...
  • 07:19 PM EDT CHRIS VERSACE

    AAP Podcast: This Company Is Not Going 'Solo'

    Listen in as I talk with the very diversified Solo...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login