As of Tuesday, February 28, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.
Markets have been very quiet so far this week in front of tonight’s State of the Union address by President Trump.
We note today that as of the close the CBOE Options Total Put/Call ratio (equity and index) soared higher to the highest level since the election last November.
In addition the VIX continued its string of higher closes.
Also of note from our friends at Pension Partners is that while S&P500 Index component earnings per share increased during 2016, they remain 4% and 8% (operating and as reported) below their peak in the third quarter (Q3) of 2014. What was the S&P500 Index price level in Q3, 2014? Around 2000. See the chart below for the S&P500 earnings:
Now this does not necessarily mean that the S&P500 Index has to go back down to the 2000 level, but it should be strongly considered that the rally in stocks we’ve had since the election has really just greatly expanded the earnings multiple in the market since earnings as of the end of 2016 are below the earnings peak of Q3, 2014, but prices are now more than 300 points higher…
Also, the S&P500 Index hit another major Fibonacci price target as of yesterday. When the index hit the 161.8% Fibonacci retracement level last December the market then consolidated sideways for weeks before launching higher again with aim at the 261.8% Fib retracement level at 2371. What will it do this time? Anything is possible, but the more likely scenario is a decline.
If you would like to review the EquitySurge™ trading signals generated in 2016 and so far in 2017 please see the Trading Signal Performance Chart page.