1-Day McClellan OB/OS Oscillators Remain Neutral
All of the major equity indexes closed lower Friday with negative internals on heavy trading volume. The bulk of the indexes closed below their near term support levels with most now below their intermediate term uptrend lines. Most of the near term trends are now negative. Breadth deteriorated as well. The data continues to send its neutral message including the 1 day McClellan OB/OS Oscillators remaining neutral in spite of the day’s heavy selloff. We are maintaining our near term “neutral” outlook for the major equity indexes largely because some bounce might now be expected. Otherwise, the picture has turned more negative.
On the charts, all of the indexes closed lower Friday with very negative internals on heavy trading volume.
- The charts suffered damage as all but the DJT (page 4) and RTY (page 5) closed below their near term support levels. All are now in near term downtrends.
- We would also note the COPMPQX (page 3) and NDX (page 4) closed fractionally below their intermediate term uptrend lines adding to a weakening structure. The DJT, MID (page 4) and VALUA (page 5) had already violated their intermediate term trends earlier in the week.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ all turned negative and below their 50 DMAs.
- High “volume at price” (VAP) levels are seen as resistant on all of the charts, making notable progress likely more difficult.
The data remains neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-37.52 NYSE:-39.79 NASDAQ:-37.01).
- The fact that they did not move into oversold territory given the violence of Friday’s action implies, in our view, a lesser likelihood of a sustainable recovery.
- The detrended Rydex Ratio (contrary indicator) remains neutral at -0.1 as is the % of SPX stocks trading above their 50 DMAs at 28.3.
- Last Tuesday’s AAII Bear/Bull Ratio (contrary indicators) turned bullish as the crowd finds bears outnumbering bulls 38.6/27.33.
- The Open Insider Buy/Sell Ratio remains neutral at 61.8.
- Valuation continues to appear appealing with the 12 month forward consensus earnings estimate from Bloomberg for the SPX at $172.14, leaving the forward p/e at a 16.5 multiple while the “rule of twenty” finds fair value at 18.5.
- The 10-Year Treasury yield is 1.53%.
- The earnings yield stands at 6.05%.
In conclusion, the charts have deteriorated further while the data has yet to signal levels associated with near term market bottoms. We are maintaining our near term “neutral” outlook primarily because some near term bounce is possible. We suspect such a bounce may be short lived given the current setup. Needless to say, conflicting trade war talk is the wild card as conflicting messages can be given within a single trading session.