McClellan OB/OS Oscillators Continue To Be Overbought
All of the indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as volumes declined on both exchanges from the prior session. No uptrends or support levels were violated on the charts. Nonetheless, we continue to suspect some pause/retracement of the substantial rally in the indexes remains a near term possibility given the state of some of the data and the magnitude of the gains. Nothing goes up in a straight line forever. Such consolidation would be very normal within an uptrend, thus we are keeping our near term “positive” outlook in place while expecting some slowing of progress.
- All of the indexes closed lower yesterday with negative internals in the NYSE and NASDAQ. All of the uptrends remain intact while there were no violations or tests of support. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive as well. We would note the stochastic readings remain overbought. As yet, they have not yielded “bearish crossover” signals. However, should said signals appear, they may prove noteworthy.
- The data remains a mix of neutral and cautionary signals. While having moderated a bit, all of the McClellan OB/OS Oscillators remain overbought (All Exchange:+71.31/+103.07 NYSE:+74.15/+128.47 NASDAQ:+70.88/+83.48). The OEX Put/Call Rati finds the pros still very heavily weighted in puts at 2.84 as they bet on expectations of some near term weakness. And as mentioned yesterday, the % of SPX stocks trading above their 50 DMAs has risen from 10% to 83.3% in the past month (page 9). The last time the current reading was achieved was in January of 2018, as noted on the chart that was followed by a few months of choppiness in the markets. 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 $168.31, leaving the forward 12-month p/e for the SPX at 16.2 versus the “rule of 20” implied fair value of a 17.3 multiple. The “earnings yield” stands at 6.165%.
- In conclusion, while the charts have yet to flash any notable cautionary signals, the nearly vertical trajectory on the charts tracking their substantial gains over the past five weeks, current OB/OS and stochastic levels and recent waning of buying volume on up days suggests that while we maintain our near term “positive” outlook, some period of pause/retracement is becoming more probable.
- SPX: 2,670/2,761
- DJI: 24,732/25,517
- 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