NYSE 21-Day McClellan OB/OS Remains Overbought
Opinion: Yesterday saw most of the equity indexes decline with the exception of the DJI. Breadth was negative while volumes rose on both exchanges. There were no significant changes in the charts but a number of minor warnings were flashed. In the meantime, some of the sentiment data remains disturbing while the NYSE 21 day OB/OS is still overbought all of which suggests some neutral to negative action over the near term for the indexes, in our opinion.
- On the charts, while no major breaks occurred, some minor warnings were flashed as follows. The SPX (page 2) closed below its short term uptrend line along with the COMPQX (page 3) that also formed a “bearish engulfing pattern”. The DJI (page 2) tested resistance but failed and closed near the lows of the day. The RUT (page 4) also formed a bearish engulfing pattern after briefly moving above resistance but failed and closed near its day’s low. Finally, the MID tested resistance but failed and closed near its lows. None of these events are major signals. However, as a whole, they do cast a short term shadow over the markets by our interpretation.
- Looking at the data, several points are still neutral. However, the 21 day NYSE McClellan OB/OS Oscillator is still nicely overbought at +89.51. Its 1 day is a neutral +28.96 as are the NASDAQ levels of +23.78 and +42.03. Sentiment remains rather disturbing as too much bullishness on the part of the crowd continues. The new Investors Intelligence Bear Bull Ratio (contrary indicator) has bulls swamping bears at 13.3/56.1 while the Rydex Ratio (contrary indicator) measuring the leveraged ETF traders is back to extreme bullish levels as those seen prior to the last correction at 58.5. The pros remain on the opposite side of the fence expecting weakness with a 1.81 OEX Put/Call Ratio (smart money). So sentiment continues to cast a shadow as well.
- In conclusion, given the chart signals and current data, we expect the near term action for the markets to be neutral to negative in nature.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.37% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.38 versus the 10 Year Treasury yield of 2.41%.