McClellan OB/OS Oscillators Oversold
Opinion: All of the indexes closed lower yesterday with negative internals as volumes shrank from the prior session. Once again, no support levels were violated while no other technical events of import were generated, in our opinion. The data remains a mixed bag of signals. However, all of the McClellan 1 day OB/OS Oscillators are oversold and suggestive of some possible bounce for the indexes. Thus we remain “neutral/positive” for the near term while the elevated valuation of the SPX keeps our intermediate term view at “neutral”.
· On the charts, all of the indexes closed lower yesterday with poor internals as volumes continued to shrink. No support levels were violated while no new technical events of import were generated. However, we would reflect again on last Thursday’s session when all of the indexes managed to recover smartly from their intraday lows, forming the “hammer” signals discussed in Friday’s report. As of this morning, those signals remain technically valid and continue to imply a short term bottom may have been established for the indexes. The fly in the ointment for the technical picture continues to be the fact that all of the advance/decline lines for the indexes remain in short term downtrends. A reversal of these trends would increase our level of confidence in the technical call.
· The data remains mixed but all of the 1 day McClellan OB/OS Oscillators remain oversold (All Exchange:-79.49 NYSE:-160.82 NASDAQ:-148.77). Given their current condition, unexpected positive news, such as the NFLX earnings this morning, could have greater than usual positive impact in the market’s response. The WST Ratio/Composite (57.2/131.5), Equity Put/Call Ratio 90.62) and Gambill Insider Buy/Sell Ratio (12.1) are all neutral while the OEX Put/Call Ratio (smart money) is a bearish 1.56 as the pros continue to expect weakness.
· In conclusion, we remain “neutral/positive” in our short term outlook given the chart issues discussed above as well as the OB/OS levels while extended forward valuation of the SPX keeps our intermediate term outlook at “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $129.10 leave a 6.05 forward earnings yield on a 16.5 forward multiple.
SPX: 2,120/2,171
DJI: 18,078/18,335
COMPQX: 5,172/5,274
DJT: 7,954/8,144
MID: 1,511/1,550
RUT: 1,211/1,238
VALUA: 4,812/4,968