McClellan 1-Day OB/OS Oscillators Very Overbought
All but one of the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ on heavy trading volume. All closed at or near their highs of the day with several violating their near-term resistance levels as others managed to climb enough to close above their 50 DMAs. As well, internals were strong enough to push the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ into near-term uptrends, confirming the chart action.
However, the recent strong market performance has now moved the McClellan 1-day OB/OS levels into very overbought territory while index stochastic levels are overbought as well. Yet, investor sentiment still finds the crowd terrified with the detrended Rydex Ratio at leveraged short levels seen only four times in the past ten years, all of which were followed by significant rallies. In our opinion, the 1-day OB/OS levels suggest some consolidation of gains over the very near term.
On the charts, all but the DJT closed higher Friday with positive internals on heavy volume. All closed at or near their intraday highs with the SPX, COMPQX, NDX, MID, RTY, and VALUA closing above resistance. Also, the SPX, DJI, and COMPQX closed back above their 50 DMAs, leaving all the charts in near-term uptrends.
Market breadth was strong enough to lift the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ positive as well, confirming the chart action. However, all stochastic levels are now overbought but have yet to flash bearish crossover signals.
The data now finds the McClellan 1-Day OB/OS oscillators very overbought and suggesting some pause/consolidation over the near term, in our opinion (All Exchange: +102.65 NYSE: +103.29 NASDAQ: +104.55).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 54%, staying neutral.
- The Open Insider Buy/Sell Ratio rose to 53.7, also staying neutral.
- The detrended Rydex Ratio (contrarian indicator) slid to -3.95, showing leveraged short exposure levels seen only four times in the past decade, each of which was followed by a significant rally.
- Last week’s AAII Bear/Bull Ratio (contrarian indicator) remained bullish at 1.81 while the Investors Intelligence Bear/Bull Ratio (contrary indicator) is 110.16, also near peak fear levels seen 4 times over the past decade, as noted on its chart, each of which was also followed by a notable rally.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg for the SPX lifting slightly to $228.00. As such, the SPX forward multiple 19.6 with the "rule of 20" finding ballpark fair value around 17.9.
- The SPX forward earnings yield is 5.11%.
- The 10-year Treasury yield closed at 2.15. We view resistance as 2.4%. Support remains at 1.87%.
In conclusion, last week’s 6% gain for the SPX was the largest % weekly gain since November of 2020, in our view, a confirmation of the sentiment signals discussed in our comments. Yet, while the sky has brightened significantly, the OB/OS and stochastic levels imply some pause/ consolidation over the near term.
SPX: 4,330/4,476 DJI: 33,914/34,737
COMPQX: 13,500/13,944 NDX: 13,990/14,471
DJT: 15,745/16,585 MID: 2,642/2,717
RTY: 2,015/2,090 VALUA: 9,348/9,591