NASDAQ 1-Day OB/OS Oversold
Several changes have occurred on the charts during our absence over the past week, mostly to the negative as several are now in short term downtrends. Meanwhile, the data that is generally neutral suggests the potential for a bounce on the NASDAQ. However, deteriorating breadth in combination with further shrinkage of forward 12 month earnings estimates for the SPX suggest said bounce may prove temporary. So while we may be a bit late having been out of the loop for the past five sessions, while we may see a short term bounce, we are shifting our near term outlook to “neutral/negative” from “neutral”.
On the charts, the past week saw several negative technical events occur.
- The DJI (page 2), COMPQX (page 3), NDX (page 3), DJT (page 4) and VALUA (page 5) all saw breaks below their respective support levels.
- Meanwhile, the MID (page 4) and RTY (page 5) closed below their short term uptrend lines.
- As well, the COMPQX, NDX and RTY are now below their 50 DMAs with the COMPQX and NDX violating their long term uptrend lines.
- As such, the short term trends find the SPX, MID and RTY neutral with the rest negative.
- Breadth has weakened as well with the All Exchange and NASDAQ cumulative advance/decline lines negative and the NYSE’s neutral.
- Only the DJT finds its stochastic oversold with the rest neutral.
- High “volume at price” (VAP) is supportive on all but the SPX and COMPQX.
The data remains mostly neutral, including most of the 1 day McClellan OB/OS Oscillators with the exception of the NASDAQ’s being oversold and suggesting a bounce within that index (All Exchange:-48.39 NYSE:-29.67 NASDAQ:-66.61).
- The detrended Rydex Ratio (contrary indicator) is a neutral +0.01 as is the % of SPX stocks trading above their 50 DMAs dipping to 66.7.
- Last Tuesday’s AAII Bear/Bull Ratio (contrary indicators) turned neutral at 32.33/32.0 with the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) turning mildly bearish at 17.0/53.8.
- The Open Insider Buy/Sell Ratio remains neutral at 43.2.
- Valuation looks slightly appealing, assuming current estimates hold. However, said estimates have continued to compress with the 12 month forward consensus earnings estimate from Bloomberg for the SPX slipping to $170.57, leaving the forward p/e at a 17.4 multiple while the “rule of twenty” finds fair value at 18.3.
- The 10-Year Treasury yield stands at 1.68%.
- The earnings yield is 5.76%.
In conclusion, the past week has cast several clouds over the technical outlook on the charts as market breadth and forward earnings estimates for the SPX have deteriorated. So while we may see a short term bounce implied by the NASDAQ 1 day OB/OS, the shifts have been sufficient to change our near term outlook to “neutral/negative” from “neutral”.