Most McClellan OB/OS Oscillators Overbought
Opinion: As we attempt to wipe some egg from our face as the markets have continued to advance while the data has been telling us to be cautious, we now find the chart/data dynamic pushed to further extremes. The charts ultimately win out. However, the data continues to suggest any unwelcome news crossing the tape could have more than its normal impact on the indexes. As such, we continue to find ourselves looking over our collective shoulders for potential risks to the markets.
- On the charts, yesterday’s advances on good breadth and stronger volumes left their bullish marks on the charts. The SPX (page 2) made a new closing high along with the MID (page 4). The DJT (page 3), which we have been harping on for the past few weeks, closed above its resistance level now leaving no appreciable supply overhead. As well, the COMPQX (page 3) made a new 13 year closing high while closing above its prior level of near term resistance. There is no question that all of these events are bullish. So, why do we find ourselves with a continued sense of short term uneasiness?
- The answer comes from the data. The new Investors Intelligence Bear/Bull Ratio (contrary indicator) as of yesterday is at a 5 year high in bullish sentiment at 16.3/61.4. The WST Ratio and its Composite have both turned bearish at 68.0 and 173.0. The Equity Put/Call Ratio (contrary indicator) shows the “crowd” at its highest level of call ownership since January of 2011 at .38 while the OEX Put/Call Ratio (smart money) still shows the pros betting very heavily on expectations of near term market weakness on its 1 and 15 DMAs of 1.71 and 2.6. Finally, 3 of the 4 McClellan OB/OS Oscillators are now overbought. The NYSE 21 day is +79.55 with the NASDAQ 1 and 21 days +59.51 and +55.87. These are not extremely high numbers but do reflect some degree of risk, in our opinion. The NYSE 1 day is a neutral +23.68. Put them all together and our feet still experience a cooling sensation regarding the near term.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.39 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.06 versus the 10 Year Treasury yield of 2.61%.
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