McClellan 1-Day OB/OS Oscillators Not Oversold
All of the indexes closed lower Thursday for the second consecutive session of broadly negative internals and heavy trading volume. The charts took a turn for the worse with combinations of violations of support and trend lines as cumulative breadth deteriorated as well. Also, the data has yet to yield signals of oversold conditions that would be suggestive of an imminent reversal. As such, the sudden change in the charts and data requires us to shift down our near term outlook for the major equity indexes from “neutral/positive” to “neutral/negative”.
On the charts, all of the indexes closed lower yesterday and at or near their intraday lows. Internals were broadly negative as well.
- The net result on the charts saw the SPX (page 2), DJI (page 2), DJT (page 4), MID (page 4) and VALUA (page 5) all break below their respective support levels.
- The action resulted in the SPX, DJI and DJT entering downtrends with the MID, RTY (page 5) and VALUA turning neutral as they also closed below their short term uptrend lines.
- So the SPX, DJI and DJT are now in short term downtrends with the rest neutral.
- The COMPQX and NDX closed on support thus maintaining their neutral trend for the moment.
- Cumulative breadth weakened as well with the All Exchange and NASDAQ cumulative advance/decline lines turning negative and below their 50 DMAs while the NYSE’s is now neutral.
- High “volume at price” (VAP) levels are seen as supportive on the SPX, DJI and MID while resistant for the VALUA.
The data continues its neutral message.
- The 1-day McClellan OB/OS Oscillators are still neutral in spite of the 2-day selloff and not yet oversold (All Exchange:-45.62 NYSE:-46.47 NASDAQ:-45.83).
- The detrended Rydex Ratio (contrary indicator) at +0.79 is neutral as is the AAII Bear/Bull Ratio (contrary indicator) at 29.0/33.0.
- The Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish as advisors are largely bullish at 16.3/58.0.
- The % of SPX stocks above their 50 DMAs (53.1) is neutral as is the Open Insider Buy/sell Ratio (35.7).
- The 12-month forward consensus earnings estimate from Bloomberg for the SPX is $173.02, leaving the forward p/e at a 17.1 multiple while the “rule of twenty” finds fair value at 18.1 suggesting the markets are somewhat undervalued.
- The 10-Year Treasury yield is 1.89%.
- The earnings yield stands at 5.88%.
In conclusion, the deterioration on the charts as well as market breadth combined with the fact that the data has yet to suggest oversold conditions exist that would imply a bounce require us to alter our near term “neutral/positive” outlook to “neutral/negative”.
- Russell: 1,544/1,585
- VALUA: 6,156/6,276