McClellan OB/OS Oscillators Remain Overbought
All of the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. Three of the charts saw violations to the upside regarding their short term resistance levels. So the uptrends remain intact. However, the data is still sending potential headwind signals in a few of its readings. As such, we remain of the opinion that while we are maintaining our near term “positive” outlook for the major equity indexes, there is some reason to suspect a pause/.consolidation of the recent rally could be forthcoming.
- On the charts, all of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes declined. The COMPQX (Page 3), MID (page 4) and RTY (page 5) closed above their near term resistance levels. As such, we now find all of the indexes in positive short term uptrends and above their 50 DMAs. And while their stochastic levels remain overbought, they have yet to flash bearish crossover signals and are capable of staying overbought for extended periods. The cumulative advance/decline lines remain positive as well.
- The data is a mix of neutral and cautionary signals. The ones of note, in our opinion, are the McClellan OB/OS Oscillators that remain “very overbought” with the one exception of the NASDAQ 1 day that is “overbought” (All Exchange:+102.85/+139.65NYSE:+119.39/+152.64NASDAQ:+95.01/+117.7). Similar to the stochastic readings, they can stay at those levels for extended periods. However, in our view, they imply a lack of “shock absorbers” should bad news hit the tape. Also, the % of SPX stocks trading above their 50 DMAs has risen from 10% to 85.3% in the past month (page 9). The last time the current reading was achieved was in January of 2018 that was followed by a few months of choppiness in the markets. Valuation still seems to be appealing as it remains below fair value, with the forward 12 month earnings estimates for the SPX via Bloomberg at $168.57, leaving the forward 12 month p/e for the SPX at 16.2 versus the “rule of 20” implied fair value of a 17.3 multiple. The “earnings yield” stands at 6.19%.
- In conclusion, the charts have yet to flash any notable cautionary signals, thus suggesting we maintain our near term “positive” outlook for the indexes. However, some of the data has increased its intensity suggestive of some pause/retracement of January’s gains should some negative news hit the tape.
- SPX: 2,626/2,723
- DJI: 24,311/25,300
- Nasdaq: 7,166/7423
- NDX: 6,627/6,950
- DJT: 9,836/10,250
- MID: 1,806/1,867
- Russell: 1,462/1,532
- VALUA: 5,765/6,044