1 Day McClellan OB/OS Remain Very Oversold
Opinion: All of the indexes closed higher yesterday with positive internals on strong treading volumes. All closed at or near their intraday highs, recovering well off of a very weak open. While a few 50 DMAs were breached to the upside, all of the short term downtrends remain intact. The data remains somewhat encouraging with the exception of sentiment that saw little shift from its prior excessive bullish opinions, in spite of recent weakness. Thus, while we may expect some sideways action within a fairly broad range as the markets adjust to recent action, the near term downtrends remain intact and should be respected unless we see violations of resistance and or trend.
- On the charts, the indexes saw significant point gains yesterday on very strong volume, recovering from early morning weakness. New resistance levels were tested on the SPX (page2), DJI (page 2) and DJT (page 4) while the COMPQX (page 3) and NDX (page 3) recovered their 50 DMAs. Yet as positive as the action was, no resistance levels were violated to an important degree, leaving all of the near term downtrend lines intact. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ saw upticks but are still negative and below their 50 DMAs. As such, while the action was encouraging, it is too early, in our opinion, to conclude that we are out of the proverbial woods just yet.
- The data has some positive signals as all of the 1 day McClellan OB/OS Oscillators remain deeply oversold with most of the 21 day levels oversold as well (All Exchange:-112.4/-54.2 NYSE:-177.12/54.23 NASDAQ:-105.19/-40.37). The Total and Equity Put Call Ratios (contrary indicators) are bullish at 0.99 and 0.73 respectively with a neutral 1.0 OEX P/C. However, excessive bullish sentiment appears to have been largely unmoved by the downdraft as the new AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicators) are essentially unchanged at 24.33/47.67 and 12.6/66.0 respectively.
- Valuation remains significantly lower than last week as the forward 12 month earnings estimates for the SPX via Bloomberg at $156.80 result in a 17.2 multiple versus an 18.7 multiple prior to the recent rout.
- In conclusion, while yesterday’s action was encouraging, the near term trends remain negative with the potential for some volatile sideways action.
- Forward 12 month earnings estimates for the SPX from Bloomberg are $156.80, leaving a 5.8 forward earnings yield on a 17.2 forward multiple.
SPX: 2,600/2,748
DJI: 23,522/24,835
COMPQX: 6,850/7,217
NDX: 6,412/6,804
DJT: 9,975/10,582
MID: 1,843/1,898
RTY: 1,497/1,520
VALUA: 5,846/6,094