McClellan OB/OS Remain Overbought
Opinion: All of the indexes closed higher Friday with positive internals as volumes rose as a result of options expiration. All closed at or near their intraday highs with more near term resistance levels violated on a closing basis. Some downtrend lines were violated as well. The data remains a mixed bag of signals, both cautionary and positive. As such, given the extent of the rally and the current data, we remain near term neutral while the intermediate term outlook remains “neutral/positive” as market breadth continues to improve but valuation is becoming extended.
- On the charts, all of the indexes closed higher and near their intraday highs as more improvements were seen on the charts. The SPX (page 2), COMPQX (page 3) and DJT (page 3) all closed above their near term resistance levels while the DJT closed above its intermediate term downtrend line. The MID (page 4) closed above its long term downtrend line. So the charts continue to improve and have yet to flash any short term sell signals while the A/D lines for the All Exchange and NYSE have made another higher high.
- However, the data continues to have us looking over our shoulders as all of the McClellan OB/OS Oscillators remain overbought on their 1 day readings (All Exchange:+75.8 NYSE:+89.86 NASDAQ:+63.7). The 21 day levels remain very overbought for the All Exchange and NYSE. The Equity Put/Call Ratio (contrary indicator) shows the crowd long calls at a bearish 0.55. However, the OEX Put/Call Ratio (smart money) still shows the pros very long calls and bullish at 0.36 while the WST Ratio and its Composite are both neutral at 56.0 and 131.3 respectively. So the data, in our opinion, is too widely dispersed to generate any strong short term market implications.
- In conclusion, while the charts continue to climb, the data is conflicting enough to keep us near term “neutral” in our outlook, especially given the extent of the current rally. The intermediate term remains “neutral/positive” as breadth improves but valuation is once again becoming historically extended for the SPX at 16.6X forward 12 month earnings estimates.
- Forward 12 month earnings estimates for the SPX from IBES of $123.27 leave a 6.01% forward earnings yield on a 16.6 forward multiple.
SPX: 2,005/2,076
DJI: 17,009/17,600
COMPQX; 4,715/4,924
DJT: 7,536/8,150
MID: 1,389/1,428
RUT: 1,035/1,107
VALUA: 4,320/4,586