McClellan OB/OS Oscillators Remain Neutral
The major equity indexes closed mostly higher yesterday except for the COMPQX and NDX posting losses. Internals were positive in the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes dipped from the prior session. Several indexes posted new closing highs while market breadth improved. Also, the data finds the McClellan OB/OS Oscillators remaining neutral. What may be of greater import is the yield on the 10-year Treasury closed below its near-term uptrend line as did the US dollar, both of which were putting pressure on the large cap tech sector. The improvement in market breadth combined with the 10 Year and US Dollar action suggest we shift our near-term outlook to “neutral” from “neutral/negative”.
On the charts, the major equity indexes closed mostly higher yesterday with positive internals on the NYSE and NASDAQ.
- While the COMPQX (page 3) and NDX (p-age 3) posted losses, the DJI (page 2), DJT (page 4), MID (page 4) and VALUA (page 5) posted new closing highs.
- As well, the RTY (page 5) closed above its near-term downtrend line and is now neutral as is the SPX (page 2).
- The COMPQX and NDX remain in negative trends as of the close with all others bullish.
- Market breadth saw some improvement with the All Exchange and NASDAQ cumulative advance/decline lines turned neutral from negative with the NYSE’s staying bullish.
- As noted above, the yield on the 10 Year Treasury and the U.S. Dollar closed below their recent uptrend lines that had previously been putting pressure on the technology sector. They may now suggest some relief from that recent pressure.
- We would also note the COMPQX and NDX flashed bullish stochastic crossovers earlier this week.
The McClellan 1-day OB/OS Oscillators remain neutral despite recent strength (All Exchange: +4.55 NYSE: +29.84 NASDAQ: -14.69).
- The leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator page 8) remains neutral at 0.84.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 18.6/53.9 suggesting too much optimism still exists on the part of investment advisors.
- The Open Insider Buy/Sell Ratio remains bearish 20.4 and continues to be a concern. As such, the psychology basket remains mostly cautionary.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg of $174.09 leaving the SPX forward multiple at 22.4 while the “rule of 20” finds fair value at 18.5. We reiterate the valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield dipped to 4.46%.
- The 10-year Treasury yield is 1.52. As stated above, its chart suggests a pause of the recent rise in yield, in our opinion.
In conclusion, improved breadth, neutral OB/OS levels and the shift in trend for the 10 Year and Dollar suggest a shift to “neutral” from “neutral/negative” in our near-term outlook for the equity markets.
SPX: 3,818/3,903
DJI: 31,562/NA
COMPQX: 12,571/13,365
NDX: 12,300/12,790
DJT: 13,400/NA
MID: 2,500/NA
VALUA: 8,850/NA