McClellan OB/OS Oscillators Oversold
All of the indexes closed lower Monday with negative internals on the NYSE and NASDAQ as trading volumes declined from those of the prior session. Several of the indexes saw violations of their support levels turning their short term trends to negative from neutral. As well, the cumulative advance/decline lines have weakened to a mix of neutral and negative readings. While the data is mixed with the OB/OS Oscillators oversold, we are not confident that they are enough to neutralize the message coming from the charts. As such, we are required to shift our near term outlook for the major equity indexes back to “neutral/negative” from “neutral”.
On the charts, all of the indexes closed lower yesterday with negative internals on the NSYE and NASDAQ as trading volumes dipped from the prior session.
- Damage was seen on the DJI (page 2), DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5) as they broke support levels that turned their near term trends to negative.
- So now only the SPX (page 2), COMPQX (page 3) and NASDAQ (page 3) are neutral.
- The fact that only the large cap indexes are holding water is of some concern.
- All are below their 50 DMAs.
- The cumulative advance/decline lines are neutral on the NYSE and All Exchange and negative on the NASDAQ.
- High “volume at price” (VAP) levels are supportive on the SPX and DJI but offer significant overhanging supply on the rest of the indexes.
The data is mixed.
- The 1 day McClellan O/OS Oscillators are now oversold (All Exchange:-63.87 NYSE:-70.3 NASDAQ:-60.27.). However, they can become more so.
- The Open Insider Buy/Sell Ratio still continues to see some modest increase in buying activity up to 64.3 but may not be strong enough to “turn the tide”.
- The detrended Rydex Ratio (contrary indicator) finds the leveraged ETF traders still neutral at -0.41.
- The new AAII Bear/Bull Ratio (contrary indicator) is unchanged from last week’s 28.0/34.67. We suspect it may not have been updated in a timely fashion this morning.
- Valuation still appears appealing assuming current forward earnings estimates for the SPX hold. The 12-month forward consensus earnings estimate from Bloomberg for the SPX is now $172.08, leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 18.4. This suggests valuation is still more appealing now than just a few weeks ago. Yet we would note the forward estimates have been seeing a minor but steady decline of late.
- The 10-Year Treasury yield is 1.64%.
- The earnings yield stands at 5.97%.
In conclusion, the charts, in spite of some encouraging data, are suggesting we should now have a “neutral/negative” outlook for the major equity indexes.