McClellan OB/OS Turn Neutral From Bullish
All of the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as NYSE volumes rose from the prior session while the NASDAQ’s declined. Three indexes closed above near term resistance but are in neutral trends while the data remains largely neutral as well. As such, we are maintaining our near term “neutral” outlook for the major equity indexes at this time.
On the charts, all of the indexes closed higher Monday with positive internals.
- The rally left all at or near their intraday highs with the SPX (page 2), COMPQX (page 3) and NDX (page 3) closing above near term resistance. However, this achievement only tuned their near term trends to neutral from negative.
- Bullish stochastic crossovers were seen on the SPX, COMPQX, NDX and DJT (page 4) as well.
- The cumulative advance/decline lines for the All Exchange and NYSE are neutral while the NASDAQ’s remains negative.
- So while the charts did see some improvement, it was not sufficient, in our opinion, to alter our current outlook.
The data saw the McClellan OB/OS 1 day Oscillators move to neutral from bullish (All Exchange:-45.9 NYSE:-49.42 NASDAQ:-44.28). We are of the opinion that their oversold readings before yesterday’s open may have been the primary force behind yesterday’s rally.
- The Open Insider Buy/Sell Ratio (35.6), detrended Rydex Ratio (.48) and new AAII Bear/Bull Ratio (23.67/39.0) are neutral as well.
- Valuation finds the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $167.51 versus the “rule of 20” fair valuation at 16.6 versus 17.4, suggesting the market is currently somewhat undervalued. However, a narrowing of the spread has occurred over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season as the SPX rose in price. While still comparatively undervalued, it is much less so than a few weeks ago.
In conclusion, while yesterday’s rally was notable in size, we suspect it was largely due to oversold conditions and insufficient to alter the charts or data to a degree that would cause an alteration in our current near term “neutral” outlook for the major equity indexes.