McClellan OB/OS Oscillators Moderate
All of the indexes closed lower Thursday with negative internals on the NYSE and NASDAQ as volumes rose above those of the prior session. The charts saw three of the indexes close below their short term uptrend lines turning said trends to neutral. However, no support levels were violated. The data has turned more mixed with the OB/OS Oscillators moderating while some other data points have turned a bit more cautionary. As such, at this stage we see no evidence to alter our near term expectations for some further consolidation/retracement of the recent gains within our generally “positive” near term outlook for the major equity indexes.
- On the charts, all of the indexes closed lower yesterday with negative internals on higher trading volume. Three of the indexes weakened a bit as they closed below their short term uptrend lines, those being the DJI (page 2), MID (page 4) and VALUA (page 5). By our work, they turn those trends to neutral from positive. However, no support levels were violated. The cumulative advance/decline lines for the All Exchange, NYSE and NBASDAQ remain in uptrends and above their 50 DMAs. So in spite of recent weakness, breadth remains generally healthy. Yet we would once again draw attention to the % of SPX stocks trading above their 50 DMAs (page 9). From a low and strong buy signal of 10% in December, it has swung to 79.0%. As the chart shows, over the past 2 years this metric has had limited ability to remain so elevated. When at these levels in early 2018, the markets went through some notable choppiness before this metric moderated.
- Looking at the data, the 1-day McClellan OB/OS Oscillators quickly dropped to neutral (All Exchange:+39.7/+78.85 NYSE:+28.81/+100.85 NASDAQ:+31.9/+62.03). The 21-day readings remain overbought. However, insiders have ramped up their selling activity a bit to a mildly bearish 31.2 Open Insider Buy/Sell Ratio. As well, the pros measured by the OEX Put/Call Ratio continue to bet on weakness at a very bearish 2.64. Yet, valuation still seems to be appealing as it remains below fair value, with the forward 12 month earnings estimates for the SPX via Bloomberg at $168.27, leaving the forward 12-month p/e for the SPX at 16.1 versus the “rule of 20” implied fair value of a 17.4 multiple. The “earnings yield” stands at 6.22%.
- In conclusion, the charts and data continue to suggest some further consolidation of the recent rally in the markets while we maintain our broader near term outlook “positive”.
- SPX: 2,670/2,738
- DJI: 24,732/25,468
- Nasdaq: 7,166/7423
- NDX: 6,776/7,110
- DJT: 9,836/10,250
- MID: 1,806/1,867
- Russell: 1,462/1,532
- VALUA: 5,905/6,129