McClellan OB/OS Oscillators Imply Bounce
Our Morning Note is late due to delayed data availability. All of the major equity indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as overall trading volumes rose from the prior session. The charts remain in negative short term downtrends with some closing on support while one closed below. The data is mixed with the McClellan 1-Day OB/OS Oscillators oversold and suggesting a bounce with the balance remaining neutral. As such, we are maintaining our near term “neutral/negative” outlook for the major equity indexes at this time.
On the charts, all of the major equity indexes closed lower yesterday with negative internals on heavier trading volumes.
· All closed at or near their intraday lows.
· Only one technical event of import was generated as the VALUA (page 5) closed below its near term support while the DJT (page 4), MID (page 4) and RTY (page 5) closed on their respective support levels.
· The continued split action between these indexes and those of the narrower larger cap indexes remains a concern.
· As well, the unweighted and all-inclusive VALUA suggests a lop sided level of bullish market participants. As such it brings market breadth into question, in our opinion.
· This is also supported by the fact that the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are now all negative.
· All of the charts remain in short term downtrends and below their 50 DMAs as the NDX (page 3) slipped below that metric at the close of the session.
· High “volume at price” (VAP) levels remain supportive n the SPX, DJI, COMPQX and NDX and resistant on the rest, yet another example of bifurcation.
· All stochastic levels are neutral.
The data remains largely neutral with the exception of all of the 1-day McClellan OB/OS Oscillators moving into oversold territory as a result of yesterday’s declines and suggesting a possible bounce (All Exchange:-73.48 NYSE:-78.9 NASDAQ:-73.47).
· The detrended Rydex Ratio (contrary indicator) is a neutral -0.38 as is the % of SPX stocks trading above their 50 DMAs at 31.3%.
· The AAII Bear/Bull Ratio (contrary indicators) remains neutral at 33.0/28.33. However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) remains bearish at 17.1/55.3 suggesting an excess of bullish sentiment on the part of investment advisors.
· The Open Insider Buy/Sell Ratio is also neutral at 53.2.
· Valuation seems appealing with forward 12-month earnings estimates for the SPX at $174.87 via Bloomberg, leaving the forward p/e at a 16.5 multiple while the “rule of twenty” finds fair value at 18.5.
· The 10-Year Treasury yield stands at 1.54%.
· The earnings yield is 6.04%.
In conclusion, bifurcation, weak market breadth and the near term chart trends suggest we maintain our near term “neutral/negative” outlook in spite of the OB/OS suggesting a bounce.
SPX: 2,893/2,956
DJI: 26,027/26,562
Nasdaq: 7,787/7,995
NDX: 7,538/7,781
DJT: 9,818/10,183
MID: 1,861/1,903
Russell: 1,471/1,515
VALUA: 5,901/6,076