Some McClellan 1-Day OB/OS Oversold
The major equity indexes closed mostly lower Monday with broadly negative internals on the NYSE and NASDAQ as trading volumes declined from Friday’s triple witching levels. The charts saw further deterioration with more support levels and 50 DMAs being violated, leaving all but one in near-term downtrends. Cumulative breadth deteriorated as well. The data is mixed with some of the 1-day OB/OS oversold and suggesting a pause while advisor sentiment and valuation remain cautionary. As such, we have not seen enough change in the evidence to alter our near-term “negative” outlook for the equity markets.
On the charts, the bulk of the major equity indexes closed lower yesterday except for the NDX posting a gain.
- Internals were broadly negative on the NYSE and NASDAQ.
- The result was the DJI (page 2) closing below near-term support and 50 DMA, shifting its short-term trend to negative.
- The same occurred on the VALUA (page 5).
- The RTY (page 5) also closed below support.
- So only the DJT (page 4) is in a short-term uptrend with the rest now negative.
- The SPX (page 2) may have formed a “hammer” pattern suggesting a possible short-term bottom. A break above resistance would be required to make the signal valid.
- Market breadth deteriorated further leaving the All Exchange, NYSE and NASDAQ A/Ds negative both on the short and intermediate term timeframes.
The data remains mixed.
- The 1-day McClellan OB/OS Oscillators are now oversold on the All Exchange and NYSE butt neutral on the NASDAQ and suggesting a pause/bounce from the recent weakness (All Exchange: -65.12 NYSE: -87.56 NASDAQ: -46.99).
- The Open Insider Buy/Sell Ratio (page 9) is also neutral dropping to 41.0 while the detrended Rydex Ratio (contrary indicator page 8) remains neutral at -0.19 with the leveraged ETF traders remaining somewhat evenly balanced in their long/short exposure.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) continues its bearish signal at 18.36/54.8 that may be the beginning of an important sentiment shift as recently discussed in these notes.
- The counterintuitive % of SPX issues trading above their 50 DMAs is neutral, dropping to 33.1%.
- The valuation gap remains extended, in our opinion, with the SPX forward multiple of 22.4 via consensus forward 12-month earnings estimates from Bloomberg of $146.47 while the “rule of 20” finds fair value at 19.3.
- The SPX forward earnings yield is 4.46% with the 10-year Treasury yield at 0.67%.
In conclusion, the charts have come a bit more in concert with our valuation and advisor sentiment concerns. Thus, we are maintaining our near-term “negative” outlook for the equity markets.
SPX: 3,271/3,386 DJI: 26,747/27,786 COMPQX: 10,738/11,232
NDX: 10,756/11,375 DJT: 11,114/11,526 MID: 1,780/1,899
RTY: 1,470/1,595 VALUA: 6,136/6,375