McClellan OB/OS Oscillators Remain Overbought
The indexes closed mixed Friday with positive internals on the NYSE and NASDAQ as volumes declined on both exchanges from the prior session. One index did manage to close marginally above resistance, leaving all of the near term uptrends intact. However, the data continues to lean a bit toward the cautionary side as some have flipped from their very bullish signals at the beginning of January to the other side of the fence. As such, while maintaining our near term “positive” outlook for the major equity indexes, we remain of the opinion that that some sideways consolidation/pause of the recent rally is likely at this point in time.
- On the charts, the indexes closed mixed Friday with positive internals as the SPX (page 2), DJI (page 2), DJT (page 4), RTY (page 5) and VALUA (page 5) closed higher. The DJI did in fact manage to close above its near term resistance level. However, a closer look at the chart shows the index’s progress was halted when it reached the intermediate term downtrend line from last October, this being the third refusal within that trend. We are not confident in making a call as to whether or not that trend will be violated to the upside over the near term but it will be something we will be monitoring closely. So we find all but the RTY in near term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
- The data, in our opinion, is still sending a bit of a cautionary message as all of the McClellan OB/OS Oscillators remain overbought (All Exchange:+92.9/+121.16 NYSE:+108.34/+152.64 NASDAQ:+80.03/+94.91). We view these levels as a potential headwind for progress. The OEX Put/Call Ratio continues to find the pros betting on weakness appearing over the near term as they are heavily weighted in puts at a very bearish 2.77 reading. As well, the % of SPX stocks trading above their 50 DMAs (page 9) stands at 82.1%. Counterintuitively, it suggests a possible excess to the upside as occurred in 2017 as noted on the chart. Valuation still seems to be appealing as it remains below fair value, in spite of the forward 12 month earnings estimates for the SPX via Bloomberg dipping to $168.69, leaving the forward 12 month p/e for the SPX at 16.0 versus the “rule of 20” implied fair value of a 17.3 multiple. The “earnings yield” stands at 6.23%.
- In conclusion, the charts have yet to flash any notable cautionary signals, thus suggesting we maintain our near term “positive” outlook for the indexes. However, the data has increased its intensity suggestive of some pause/retracement of January’s gains.
- SPX: 2,626/2,723
- DJI: 24,311/25,205
- Nasdaq: 7,013/7270
- NDX: 6,627/6,950
- DJT: 9,626/10,250
- MID: 1,775/1,850
- RTY: 1,427/1,506
- VALUA: 5,765/6,044