McClellan 1-Day OB/OS Back to Neutral From Overbought
The major equity indexes closed mostly lower Wednesday with mixed internals on the NYSE as the NASDAQ saw negative breadth and up/down volume. Volumes exceeded those of the prior session on both exchanges. Most closed at or near their intraday lows. The one exception was the DJT posting a gain to a new all-time closing high. However, even with the notable weakness, all the charts managed to hold their near-term uptrend lines with no violations of support. As such, the charts remain positive. The 1-day McClellan OB/OS Oscillators dropped back to neutral, relieving their overbought signal. Yet investor sentiment and valuation continue to cast clouds over the market’s near-term prospects, in our opinion, as bullish sentiment appears excessive as does valuation. The net result is there wasn’t enough of a shift in the evidence to alter our near-term “neutral” outlook for the equity markets as a whole.
On the charts, the only index closing higher yesterday was the DJT (page 4) posting a new all-time high. The rest posted losses, closing at or near their intraday low.
- Yet, with the weakness, there was no violation of uptrend or support on any of the charts, leaving all in technical near-term uptrends.
- As well, the negative action left the cumulative advance/decline lines for the All-Exchange, NYSE and NASDAQ in uptrends and above their 50DMAs.
- No bearish stochastic crossovers were generated. So, the charts remain positive.
The data, on the other hand, is still some cause of concern for us.
The 1-day McClellan OB/OS Oscillators moved back to neutral, from their prior overbought readings on the All Exchange, NYSE and NASDAQ (All Exchange: +30.52 NYSE: +41.47 NASDAQ: +21.59).
However, psychology and valuation continue to be our greatest concerns.
- The Open Insider Buy/Sell Ratio (page 9) dipped just shy of bearish levels at 28.0. Insider sell transactions have well outweighed buys over the past few weeks.
- The detrended Rydex Ratio (contrarian indicator) remains bearish at 1.43 with the leveraged ETF traders very leveraged long.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw yet another decline in bearish advisors as bullish sentiment increased and remains in bearish territory at 16.7/64.7. As well, the AAII Bear/Bull Ratio at 25.53/46.92 is near peak levels seen over the past decade.
- The crowd is almost entirely on the buy side of the boat.
- The valuation gap is a concern as well with the SPX forward multiple of 22.9 on consensus forward 12-month earnings estimates from Bloomberg of $160.22 while the “rule of 20” finds fair value at 19.1.
- The SPX forward earnings yield is 4.36% with the 10-year Treasury yield at 0.94%.
In conclusion, yesterday’s declines were not significant enough to shift our discipline from its current “neutral” near-term outlook for the equity markets.
SPX: 3,620/NA
DJI: 29,385/NA
COMPQX: HVS11,905/NA
NDX: HVS11,990/NA
DJT: 12,370/NA
MID: 2,118/NA
RTY: 1,840/NA
VALUA: 7,445/NA