McClellan OB/OS Oscillators Oversold Again
The major equity indexes closed mixed yesterday with positive internals on the NYSE while the NASDAQ had negative breadth but positive up/down volume. The net result was a mix of both negative and positive technical events as the near-term trends remain evenly split between bullish and bearish trajectories. The data finds some of the McClellan OB/OS Oscillators staying oversold and suggesting a bounce. However, we would note that recent similar signals have failed. Slight improvement in some of the psychology data was not enough to alter its continuing cautionary tone as the rising 10 Year Treasury Yield lifted further. As such, we are maintaining our near term “neutral/negative” outlook despite the futures suggesting a strong open.
On the charts, the major equity indexes closed mixed yesterday with the SPX (page 2), COMPQX (page 3) and NDX (page 3) posting losses as the others managed gains. Bullish and bearish technical signals were generated.
- The SPX closed its 50 DMA as the NDX closed below support.
- On the other hand, the DJI (page 3), DJT (page 4), MID (page 4) and VALUA (page 5) closed above resistance.
- As such, the trends are split with the SPX, COMPQX, NDX and RTY negative with the rest in uptrends.
- Market breadth remains weak with the cumulative advance/decline lines for the All Exchange and NASDAQ negative with the NYSE’s neutral.
- No stochastic signals were generated.
The McClellan 1-day OB/OS Oscillators remain oversold on the All Exchange and NASDAQ, implying further bounce potential while the NYSE’s is neutral (All Exchange: -57.05 NYSE: -18.58 NASDAQ: -85.84).
- The Open Insider Buy/Sell Ratio at 21.2 saw a slight uptick in insider buying but remains well within bearish territory that implies said insiders remain generally absent at the buy window. Apparently, they have yet to see prices low enough to generate any meaningful buying interest despite the recent declines in some of the large cap tech stocks.
- The leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator page 8) dipped further to 0.64 and remains neutral. They would produce a bottom signal when leveraged short, which has yet to appear.
- However, this week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 18.6/53.9 suggesting too much optimism still exists on the part of investment advisors. So, the psychology basket remains mostly cautionary.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg of $173.98 leaving the SPX forward multiple at 22.0 while the “rule of 20” finds fair value at 18.4. We reiterate the valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield is 4.55%. The 10-year Treasury yield is 1.6 and still suggests potential to the 1.7% level, in our opinion.
- We remain near-term “neutral/negative” in our outlook for the reasons discussed above.
DJI: 31,310/32,000
COMPQX: 12,395/13,000
NDX: 12,300/12,790