McClellan 1-Day OB/OS Oversold
All the major equity indexes closed lower again Wednesday with negative internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. All closed at or near their intraday lows as late session selling pressure intensified.
More damage was done on the charts as multiple support levels were violated, shifting several near-term trends to bearish from neutral. And while the data now finds the McClellan OB/OS Oscillators in oversold territory, cumulative market breadth continued to degenerate as fewer and fewer stocks have been able to get some upside traction.
So, while we are maintaining our current near-term “neutral” macro-outlook for equities, the OB/OS oscillators that are oversold are not at extremes while market breadth has yet to show any signs of repair, implying some potential for further downside for the markets.
On the charts, all the major equity indexes closed lower yesterday with negative internals on lighter trading volumes from the preceding session.
- The charts suffered further damage with the SPX, DJI, COMPQX, NDX, MID and VALUA all closing below their near-term support levels.
- As well, the COMPQX, DJT, MID, and RTY closed below their 50 DMAs.
- So, the DJT is the only index still in a near-term uptrend with the DJI and NDX neutral as the rest are now bearish.
- Market breadth deteriorated further with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ making lower lows and in downtrends as well as below their 50 DMAs.
- Bearish stochastic crossover signals were generated on the SPX and DJI.
The data, except for the 1-day McClellan OB/OS Oscillators, continues to send a generally neutral message, in our opinion.
- The McClellan 1-Day OB/OS oscillators are now oversold but not at extreme levels (All Exchange: -70.58 NYSE: -75.95 NASDAQ: -66.3).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 0.74 but remains neutral.
- The Open Insider Buy/Sell Ratio saw a minor uptick to 41.7 and remains neutral as well.
- This week’s contrarian AAII bear/bull ratio (29.1/36.42) and Investors Intelligence Bear/Bull Ratio at 15.9/56.4 (contrary indicator) and are respectively neutral and bearish.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $205.61 for the SPX. As such, the SPX forward multiple is 21.4 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.67%.
- The 10-year Treasury yield lifted slightly to 1.27%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10-year yield into a higher trading range could cause some issues for the markets.
In conclusion, while we remain officially near-term “neutral” in our macro-equity outlook, the charts and market breadth have yet to send signals suggesting the recent downdraft is complete while the OB/OS have potential for becoming more deeply oversold.
SPX: 4,376/4,430 DJI: 34,711/35,216 COMPQX: 14,494/14,700 NDX: 14,558/14,994
DJT: 14,518/15,084 MID: 2,652/2,697 RTY: 2,120/2,200 VALUA: 9,273/9,520