McClellan 1-Day OB/OS Oscillators Remain Overbought
The major equity indexes closed mixed Wednesday with positive internals on the NYSE and NASDAQ as trading volumes rose from the prior session. Most closed at or near their intraday lows. While one index closed below its near-term uptrend line, another posted a new closing high as, by our work, market internals continued to strengthen.
The chart trends remain a mix of neutral and positive while the data remains mixed as well. Yet, given what we perceive to be an improvement of underlying market breadth, we continue to suspect an upside resolution to the current market sideways trade.
Thus, we remain near-term “neutral/positive” macro-outlook for equities despite the futures indicating a negative open this morning.
On the charts, the major equity indexes closed mixed yesterday with the DJT, MID and RTY closing lower on the day as the rest made minor advances. The market remains in its recent tight trading range.
- Internals were positive on the NYSE and NASDAQ as trading volumes were fairly heavy.
- The charts saw the DJI close below its near-term uptrend line and is now neutral as are the SPX and NDX with the rest in near-term uptrends.
- In fact, the VALUA made another new closing high. In our opinion, this unweighted index adds to our speculation that the current market sideways trade may likely resolve to the upside.
- Market breadth remains positive on the All Exchange, NYSE and NASDAQ with all above their 50 DMAs.
- Stochastic levels remain overbought but not yet yielding bearish crossover signals.
On the data, the McClellan 1-Day OB/OS Oscillators remain overbought and may present a near-term headwind (All Exchange: +58.64 NYSE: +52.85 NASDAQ: +62.82).
- The Rydex Ratio measuring the action of the leveraged ETF traders dipped to 1.22 but remains in bearish territory.
- This week’s AAII bear/bull ratio stayed neutral at 26.58/36.64. The Investors Intelligence Bear/Bull Ratio saw another drop in bullish sentiment to 16.8/51.5 but remains bearish. We reiterate, the drop on AAII & II % of bulls is an improvement from what we had previously viewed as an excess of bullish expectations.
- The Open Insider Buy/Sell Ratio rose slightly to 32.1 and remains neutral. However, its recent slight improvement suggests insiders desire to buy their stock has improved somewhat.
- Valuation continues to appear extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $191.12, leaving the SPX forward multiple at 22.0 with the “rule of 20” finding fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield is 4.54%.
- The 10-year Treasury yield closed at 1.59%. We view support at 1.55% with resistance at 1.63%. We continue to believe the moves in the 10-year yield may well have the greatest influence over the near-term action on the equity indexes.
SPX: 4,153/4,225 DJI: 34,395/34,740 COMPQX: 13,433/13,750
NDX: 13,406/13,755
RTY: 2,225/2,280 VALUA: 9,543/NA