NYSE 1-Day McClellan OB/OS Oversold
Opinion
Friday’s decline in the equity markets came on relatively light volume and negative breadth. No notable events occurred on the charts. However, when combining the charts and data, the weight of the evidence, in our opinion, continues to imply a neutral to negative outlook for the major equity indexes over the short term.
- On the charts, there were no major signals flashed as a result of Friday’s trade. While all of the indexes closed lower, the SPX (page 2) tested support while the DJI (page 2) broke support on an intraday basis but managed to close above at the end of trading. The MID (page 4) closed on support. We would note, however, all of the indexes remain below their prior near term uptrend lines and the NASDAQ A/D remains below its 50 DMA. As well, although overall volumes shrank, the volume on the SPX and MID ETF’s (SPY,MDY) rose significantly suggesting more distribution within those ETF’s. We would also note the unusual 1 day spike in yield on the 10 Year Treasury to 2.61%.
- On the data, the declines were sufficient to push the NYSE 1 day McClellan OB/OS into oversold territory at -77.01. However, the rest of the OB/OS remain neutral along with the WST Ratio and its Composite (44.4/114.2). Most of the remaining data is neutral with the exception of the OEX Put/Call Ratio (smart money) at a mildly bearish 1.4 and the Rydex Ratio (contrary indicator) still showing too much bullish sentiment on the part of the leveraged ETF traders at 58.7.
- In conclusion, although there are no glaring signals coming from either the charts or data, the sum of the parts still suggests a neutral to negative outlook for the major equity indexes by our work.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.47% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.46 versus the 10 Year Treasury yield of 2.61%.
- SPX:1,979/?
- DJI: 16,980/17,140
- NASDAQ: 4,543/?
- DJT: 8,294/?
- MID: 1,420/1,444
- RUT: 1,150/1,166