McClellan 1-Day OB/OS & Insiders Buying Activity Suggest Bounce
The major equity indexes closed notably lower Friday with broadly negative internals with the emergence of the Omicron variant. All closed at or near their lows of the day with multiple negative technical events being registered on the charts, leaving their near-term trends a mix of neutral and negative projections.
However, the McClellan one day OB/OS Oscillators are now at levels largely coincident with bounces while insiders further ratcheted up their buying activity. So, the combination of the OB/OS levels and insider buying activity somewhat counterbalance the negative charts, leaving our near-term macro-outlook for equities at “neutral.” Futures indicate a strong open due to some comments from vaccine producers.
On the charts, the major equity indexes closed notably lower Friday with very negative internals on the NYSE and NASDAQ as all closed near their intraday lows.
- The heavy selling resulted in every index, except the DJT, closing below their support levels while some 50 DMAs and trend lines were violated as well.
- Both the DJI and COMPQX saw their near-term trends turn negative from neutral while the VALUA closed below is 50 DMA.
- As such, the charts are mostly in neutral trends with the DJI, COMPQX, and RTY negative.
- Market breadth weakened further with the All Exchange, NYSE, and NASDAQ cumulative advance/decline lines all negative and below their 50 DMAs.
- No stochastic signals were generated, although some are close to being oversold.
The data finds the McClellan 1-Day OB/OS Oscillators moved deeper into oversold territory and now at levels that are typically the lows within corrections as seen on their charts on the subsequent pages (All Exchange: -97.75 NYSE: -105.18 NASDAQ: -91.89). In fact, the NYSE OB/OS is very oversold.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 1.12 as the ETF traders lightened up on leveraged long exposure. However, it remains inside bearish territory.
- The Open Insider Buy/Sell Ratio, on the other hand, rose to 54.4 from 48.9 as insiders continued to increase their buying activity. It remains neutral but has been improving over the past several sessions.
- Last week’s contrarian AAII Bear/Bull Ratio (0.63) remained neutral as did the Investors Intelligence Bear/Bull Ratio (21.4/57.2) (contrary indicator).
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $214.51 for the SPX. As such, the SPX forward multiple is 21.4 with the “rule of 20” finding fair value at approximately 18.5.
- The SPX forward earnings yield is 4.67%.
- The 10-year Treasury yield closed lower at 1.5% and below support. We view new support at 1.38% and resistance at 1.62%.
In conclusion, while the charts and breadth suffered damage Friday, the OB/OS oscillators and insider buying activity suggest bounce potential. We remain “neutral” in our ear-term macro-outlook for equities and are of the opinion some very selective buying may now be appropriate.
SPX: 4,590/4,662 DJI: 34,448/35,705 COMPQX: 15,327/15,798 NDX: 15,653/16,200
DJT: 16,000/16,915 MID: 2,780/2,872 RTY: 2,240/2,340 VALUA: 9,668/9,983
All charts courtesy of Worden; RTY chart courtesy of Bloomberg
