NASDAQ 1-Day McClellan OB/OS Very Overbought
All of the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. The charts saw several resistance levels violated to the upside leaving all if the charts in positive trends. However, the data’s cautionary signals are intensifying, suggesting the potential for some sizable risk existing should some unwelcome news hit the tape. As such, the combination of the chart and data scales remain too evenly balanced to alter our near term “neutral” outlook for the major equity indexes, in spite of the recent rally.
On the charts, all of the major equity indexes closed higher yesterday with positive internals on higher trading volume.
· Near term resistance levels were violated to the upside on the SPX (page 2), DJI (page 2), RTY (page 5) and VALUA (page 5).
· All remain in near term positive uptrends and above their 50 DMAs.
· High “volume at price” (VAP) levels are generally supportive.
· The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs.
· However, the positive structures of the charts noted above are being somewhat counterbalanced by overbought stochastic levels in every case with some at peak levels of +100. Should “bearish crossover signals” be generated, they would imply an increase of retracement.
The data remains mixed.
· All of the 1 day McClellan OB/OS Oscillators moved deeper into overbought territory with the NASDAQ’s extremely so (All Exchange:+93.68 NYSE:+89.22 NASDAQ:+102.37). Like the stochastic readings, they imply an increase in retracement potential.
· The detrended Rydex Ratio (contrary indicator) is neutral at -0.15 as is the % of SPX stocks trading above their 50 DMAs at 65.4.
· Tuesday’s AAII Bear/Bull Ratio (contrary indicators) remained bullish at 40.0/26.67. The Investor’s Intelligence Bear/Bull Ratio (contrary indicator) shifted from bearish to neutral at 18.7/44.9 .
· The Open Insider Buy/Sell Ratio remains neutral but dropped again to 40.9.
· The appearance of valuation continuing to look appealing, assuming current estimates hold, has diminished with the 12 month forward consensus earnings estimate from Bloomberg for the SPX dipping to $171.59, leaving the forward p/e at a 17.5 multiple while the “rule of twenty” finds fair value at 18.3. We would note said earnings estimates have been declining over the past week from $172.25 as the markets have moved higher.
· The 10-Year Treasury yield rose to 1.73%.
· The earnings yield stands at 5.72%.
In conclusion, there is nothing on the charts at this point suggesting a negative shift in trend, with the exception of their stochastic readings, as all remain positive. However, the decline in the valuation spread combined with the OB/OS overbought conditions suggest enough potential risk resulting in our maintaining our “neutral” near term outlook at this time.
SPX: 2,938/3,001
DJI: 26,607/27,131
nasdaq: 8,007/8,196
NDX: 7,663/7,903
DJT: 10,060/10,547
MID: 1,875/1,934
MID: 1,513/1,581
VALUA: 6,092/6,322