Most Stochastic Levels Overbought
Opinion: Most of the indexes closed higher Friday with positive internals as volumes remained strong but below the prior session’s levels. Only the SPX closed lower on the day. Further technical improvement was seen in some of the charts. However, the recent strong rally is causing some of the data to moderate from its prior strong bullish signals. Yet the data has not shift quite enough to alter our near term “neutral/positive” outlook for the major indexes. High forward valuation for the SPX does keep our intermediate view at “neutral”.
- On the charts, all but the SPX (page 2) closed higher Friday. All closed at or near their intraday highs with positive internals. Positive events were seen with the DJI (page 2) making a marginal new closing high while the VALUA (page 5) closed above resistance to a new closing high as well. The MID (page 4) also closed above resistance. We also now see all of the advance/decline lines turning neutral from their prior bearish downtrends. However, we think it worthy of note that the stochastic levels on all but the COMPQX (page 3) have now shifted from deeply oversold to the upper range of overbought conditions. We will monitor them for any bearish crossover signals, should they occur. Overbought conditions can exist for extended periods. As such, there is no timeclock applicable in that regard.
- Some of the data has moderated as a result of the rally. While most of the McClellan OB/OS Oscillators remain neutral (All Exchange:+35.52/-16.50 NYSE:+6.63/-18.55 NASDAQ:+70.57/-10.92), the NASDAQ 1 day is now overbought. The Equity Put/Call Ratio (contrary indicator) now finds the crowd long calls after the 1,000 point rally at 0.53, suggesting a lessening of their prior fear. The OEX Put/Call Ratio (smart money) is a neutral 1.37 while the new AAII Bear/Bull Ratio (contrary indicator) now finds bulls outnumbering bears at 29.33/38.89, another sign of the crowd losing some of its prior caution. So as an aggregate, the prior bullish data signals have now turned neutral with a couple of yellow flags appearing on the scene.
- In conclusion, while the data is tempering, we have not seen quite enough evidence presented as yet to alter our near term “neutral/positive” outlook for the major equity indexes. But high forward valuation of the SPX keeps the intermediate term view at “neutral”.