Some McClellan 1-Day OB/OS Oscillators Enter Oversold Territory
The major equity indexes closed mostly higher Wednesday. However, the gains came on negative market breadth that has continued to deteriorate over the past few sessions.
As discussed recently, market participation to the upside by issuers has continued to become increasingly more selective. Such conditions are not a healthy market structure historically. With that said, there was no change on the charts regarding their mix of near-term trends.
The futures are indicating a notably weak open. However, the data finds some of the McClellan 1-day OB/OS Oscillators already entering oversold levels, but not to an extreme associated with short-term bottoms. Nonetheless, they may offer some limit to market downside, in our opinion.
The rest of the data remains largely neutral. As such, despite what appears to be a negative open, we are maintaining our near-term “neutral/positive” macro-outlook for equities although within a narrowing breadth structure.
On the charts, the RTY and VALUA closed lower yesterday as the rest advanced. In fact, the SPX, COMPQX and DX again made new closing highs.
- There were no changes in trend with the SPX, DJI, COMPQX, and NDX in uptrends, the RTY negative and the rest neutral.
- But as has been the case of late, the gains came on negative breadth for both the NYSE and NASDAQ that resulted in the cumulative advance/decline lines for the All-Exchange turning negative from neutral, The NYSE turning neutral form positive and the NASDAQ staying negative but closing below its 50 DMA.
- No new stochastic signals were generated as of the close.
The data finds the McClellan 1-Day OB/OS Oscillators for the All-Exchange and NASDAQ in oversold territory with the NYSE still neutral (All Exchange: -50.22 NYSE: -31.63 NASDAQ: -63.2). Short-term bottoms are usually seen in the -100 to -200 range.
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 1.45 but remains bearish territory.
- This week’s contrarian AAII bear/bull ratio (23.9/43.37) turned neutral from mildly bearish while the Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish at 16.2/59.6.
- The Open Insider Buy/Sell Ratio declined to 28.3 and remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $198.87 for the SPX. As a result, the SPX forward multiple is 21.9 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.56%.
- The 10-year Treasury yield closed at 1.32 and below support. We see new support as 1.2% and resistance at 1.44%. The 10-year yield remains in a downtrend from its March peak that we view as a positive for equities in general regarding valuation.
In conclusion, the McClellan 1-day OB/OS may have some limiting influence on the markets downside. We remain of the opinion that an increasing selective environment still offers some opportunity.
SPX: 4,251/NA DJI: 34,500/NA COMPQX: 14,356/NA
NDX: 14,137/NA DJT: 14,602/15,181 MID: 2,614/2,713
RTY: 2,180/2,225 VALUA: 9,536/9,807