NASDAQ And All Exchange 1-Day OB/OS Oscillators Overbought
Our next report will be issued on Tuesday, Sept. 7. The major equity indexes closed mostly higher Wednesday with positive internals on the NYSE and NASDAQ as trading volumes dipped on the NYSE and rose on the NASDAQ from the prior session.
Two new closing highs were registered on the charts, leaving all but two in near-term uptrends as market breadth continued to improve. However, the data now finds two of the McClellan 1-day OB/OS Oscillators overbought that, when joined with some of the stochastic levels, suggest chasing price at current levels may not be the wisest approach for the very short term. Nonetheless, we have yet to see sufficient evidence to alter our current near-term “neutral/positive” macro-outlook for equities.
On the charts, only the DJI closed lower yesterday as the rest advanced with positive internals on the NYSE and NASDAQ.
- The COMPQX and NDX made new closing highs, leaving all the indexes in near-term uptrends except the DJI and MID being neutral.
- Regarding the MID, a closer examination of the chart has led us to consider the possible formation of a complex inverted head and shoulders for the index. A new closing high above resistance on volume would be required to further validate our assumption. Should that occur, it would imply a potential move to 3,000 for the MID, in our opinion.
- Market breadth, meanwhile, continued to improve with the All Exchange, NYSE and NASDAQ cumulative advance decline lines positive while the All Exchange joined the NYSE A/D by moving above its 50 DMA.
- Some of the stochastic levels are now overbought and in the mid-90s. No bearish crossovers have been generated thus far. However, that potential does exist.
The data saw a few shifts.
- The McClellan 1-Day OB/OS Oscillators find the NASDAQ and All Exchange1-day now overbought with the NYSE’s neutral (All Exchange: +54.7 NYSE: +38.65 NASDAQ: +65.9).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 1.32 but still finds the ETF traders heavily leveraged long and in bearish territory.
- The Open Insider Buy/Sell Ratio was unchanged at a neutral 38.5.
- This week’s contrarian AAII bear/bull ratio saw an increase in bears and bulls, remaining neutral (32.77/35.43) with Investors Intelligence Bear/Bull Ratio at a bearish 18.5/50.0 (contrary indicator) as a few advisors left the bull camp.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $207.60 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately 18.7.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury yield was unchanged at 1.3% and remains within its current trading range with resistance at 1.4% and 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 the OB/OS and Rydex Ratio suggest some tempering of very near-term enthusiasm, we remain “neutral/positive” in our near-term macro-outlook for equities.
SPX: 4,440/NA DJI: 35,000/35,495 COMPQX: 14,823/NA NDX: 15,139/NA
DJT: 14,660/14,952 MID: 2,710/2,780 RTY: 2,200/2,300 VALUA: 9,553/9,835
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