1-Day McClellan OB/OS Remain OversoldOpinion
The indexes closed mixed yesterday with mixed internals on the NYSE and NASDAQ as both exchanges saw positive breadth but negative up/down volume. Overall volumes declined from the prior session. The data is mixed but offers some encouragement on the oscillators. Valuation has dropped to a 17.1 forward multiple of forward 12 month consensus earnings estimates via Bloomberg. So while all of the charts remain in their short term downtrends that should be respected, we are starting to get the impression that the recent rout may start to offer opportunity, as discussed below.
- On the charts, the indexes closed mostly lower yesterday. However, breadth was actually positive on the NYSE and NASDAQ while up/down volumes were negative on overall lower trading volume. The positive breadth, in our opinion, offers a minor ray of hope. Most closed at or near their intraday lows while the DJT (page 4) and RTY (page 5) closed higher on the day. The DJT also flashed a bullish stochastic crossover signal. We would note the DJT was the first index to flash a negative signal a few weeks ago, prior to the rest of the indexes roiling over. We would also note that at the recent intraday market lows, the SPX (page 2) and DJI (page 3) saw successful tests of their long term uptrend lines. If those trend lines hold, they would imply recent weakness has been a correction within a long term uptrend that remains intact. Yet all of the near term downtrends remain intact with the cumulative advance/decline lines negative as well. As such, it’s too early to make that call with full confidence.
- The data is mixed but the 1-day McClellan OB/OS Oscillators remaining oversold as are most of the 21 day levels (All Exchange:-93.49/-50.43 NYSE:-101.35/-57.88 NASDAQ:-86.85/-39.31). The Equity P/C ratio (0.68) and OpneInsider Buy/Sell Ratio (34.6) are both neutral while the Total P/C is a bullish 0.91 countered by the pros being up to their eyeballs in outs at an extremely bearish 4.25 OEX P/C.
- In conclusion, while some rays of light may be appearing, negative near-term trends and cumulative breadth suggest it’s too early to say we’re out of the woods. Yet we would ask this simple question, “If everyone loved the market at an 18.7 multiple, does it make sense to hate it at a 17.1 multiple just over 1 week later as estimates have risen?” The answer may be “fear”. Fear creates opportunity.
- Forward 12-month earnings estimates for the SPX from Bloomberg are $156.80, leaving a 5.8 forward earnings yield on a 17.1 forward multiple.
- SPX: 2,600/2,748
- DJI: 23,522/24,875
- COMPQX; 6,850/7,217
- NDX: 6,412/6,804
- DJT: 9,975/10,582
- MID: 1,843/1,898
- RTY: 1,461/1,517
- VALUA: 5,846/6,094