All Exchange And NYSE OB/OS Very Oversold

The major equity indexes closed lower Wednesday with broadly negative internals on the NYSE and NASDAQ as trading volumes rose from those of the prior session. The charts saw some negative events generated with closes below support and near-term uptrend lines, leaving all but the DJT in short-term downtrends.

Cumulative breadth deteriorated further as well. The data finds most of the McClellan OB/OS Oscillators very oversold, suggesting a pause or possible bounce from the recent market weakness, while valuation and advisor sentiment remain cautionary. As such, nothing occurred yesterday to warrant a change in our near-term “negative” outlook for the equity markets.

On the charts, all the equity indexes closed lower yesterday with negative internals and heavier trading volumes on the NYSE and NASDAQ.

• Damage was registered on the charts with the SPX (page 2), COMPQX (page 3), RTY (page 5) and VALUA (page 5) closing below their near-term support levels.
• As well, the COMPQX and NDX (page 3) closed back below their near-term downtrend lines, leaving all in short-term downtrends except for the DJT that is positive but closed on support.
• We also find very high-volume resistance present on the COMPQX, MID and VALUA that may well be difficult to overcome over the near term.
• Cumulative breadth weakened further with the All Exchange, NYSE and NASDAQ A/Ds negative and below their 50 DMAs.
• In fact, the NASDAQ’s A/D closed below its 200 DMA yesterday.

The data remains mixed.

• The 1-day McClellan OB/OS Oscillators are now deeply oversold on the All Exchange and NYSE and oversold on the NASDAQ, suggesting a pause/bounce from the recent weakness (All Exchange: -100.44 NYSE: -118.56 NASDAQ: -86.02). Failure to pause/bounce would add more weight to the cautionary side of the scales, in our opinion.
• The Open Insider Buy/Sell Ratio (page 9) is neutral at 46.3 while the detrended Rydex Ratio (contrary indicator page 8) remains neutral at +0.35 with the leveraged ETF traders continuing to be 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 24.4%.
• The valuation gap remains extended, in our opinion, with the SPX forward multiple of 22.2 via consensus forward 12-month earnings estimates from Bloomberg of $146.05 while the “rule of 20” finds fair value at 19.3.
• The SPX forward earnings yield is 4.51% with the 10-year Treasury yield at 0.68%.

In conclusion, for the reasons discussed in these comments over the past few weeks, we are maintaining our near-term “negative” outlook for the equity markets as nothing  has come to the fore to suggest a need for altering said outlook.

SPX: 3,233/3,323            DJI: 26,747/27,786                  COMPQX: 10,534/11,049      

NDX: 10,756/11,375        DJT: 11,086/11,526                 MID: 1,780/1,899  

RTY: 1,450/1,500            VALUA: 5,975/6,206