McClellan OB/OS Oscillators Overbought
On the charts, all of the indexes closed higher Friday with positive internals on the NDSE and NASDAQ as volumes rose on both exchanges from the prior session. Only two of the indexes failed to break above their near term resistance levels as the charts continue to send a positive message. On the other hand, we are seeing some clouds gathering on the data dashboard that, while not enough to tilt the scales, suggest the indexes may start to encounter some stronger headwinds. While the data is suggesting some degree of caution, it is not sufficient to alter our near term “neutral/positive” outlook for the major equity indexes at this time.
On the charts, all of the indexes closed higher Friday with positive internals on higher volume.
- Every index, with the two exceptions of the DJI (page 2) and NDX (page 3), closed above their near term resistance levels.
- The DJI and NDX closed at resistance.
- The RTY (page 5) closing above resistance turned its trend positive, leaving all off the indexes in near term uptrends.
- The cumulative advance decline lines for the All Exchange., NYSE and NASDDAQ remain positive and above their 50 DMAs.
- The stochastic levels are overbought across the board but have not trigged bearish crossovers at this point.
The data is now mixed.
- All of the McClellan OB/OS Oscillators are now in overbought territory (All Exchange: +52.92/+77.13 NYSE:+57.34/+101.21 NASDAQ:+53.22/+59.28). While not immediately disconcerting, it does suggest some degree of caution may be appropriate.
- The % of SPX stocks trading above their 50 DMAs has turned cautionary as well at 82.8%.
- However, on a positive note, the “crowd” remains, in our opinion, remarkably ambivalent to the recent market gains as the detrended Rydex Ratio (contrary indicator) still finds the leveraged ETF traders dead neutral at 0.53. We typically see them highly optimistic near market peaks.
- The 12-month forward consensus earnings estimates from Bloomberg for the SPX stands at $172.22 leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 17.5 As such, the SPX continues to appear to be slightly undervalued.
In conclusion, some of the data is suggesting gains may become harder to achieve over the near term. Nonetheless, the charts and psychology data remain positive, thus leaving our near term “neutral/positive” near term outlook in place. .