Near-Term Outlook Remains “Neutral/Positive”

McClellan OB/OS Return To Neutral From Overbought

Opinion

All of the equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. While a couple of clouds appeared on the charts, no technical events of major import were registered, in our opinion. The data finds the McClellan OB/OS Oscillators, discussed as being a concern in yesterday’s note due to their overbought conditions, reversed quite notably back into neutral territory. As such, given the charts and data, we remain “neutral/positive” in our near term outlook for the major equity indexes.

• On the charts, all of the indexes closed lower yesterday with negative internals as volumes rose from the previous session, leaving all at or near their intraday lows. A few clouds were formed as the MID (page 4) closed below its near term uptrend line while the DJT (page 4), RTY (page 5) and VALUA (page 5) closed below their 50 DMAs. However, we think it to be of greater import that none of the near term support levels were violated. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 350MDAs. And although the stochastic levels remain overbought, no bearish crossover signals were generated.

• The data is mixed. What we find to be most interesting is that yesterday’s weakness resulted in a fairly notable reduction of the McClellan 1-day OB/OS Oscillators that were overbought and noted to be of some cautionary concern in yesterday’s note. We view such speedy corrections of overbought conditions as encouraging. All of the OB/OS levels are back in neutral (All Exchange:+39.45/-33.28 NYSE:+18.53/-41.16 NASDAQ:+12.97/-39.58). The Equity Put/Call Ratio is neutral at 0.63 with the OEX and Total Put/Call Ratios counterbalancing with a very bearish 2.56 and very bullish 1.04 respectively. The OpenInsider Buy/Sell Ratio remains neutral at 50.4.

• In conclusion, given the state of the charts and data discussed, we are maintaining our near term “neutral/positive” intact.

• Forward 12-month earnings estimates for the SPX from Bloomberg are $157.72 leaving a 5.7 forward earnings yield on a 17.4 forward multiple.
• SPX: 2,742/2,816
• DJI: 24,924/25,976
• NASDAQ: 7,191/7,453
• NDX: 6,749/7,021
• DJT: 10,330/10,966
• MID: 1,879/1,916
• Russell: 1,527/1,576
• VALUA: 6,036/6,244