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Bounce Moves OB/OS To Neutral

Published 07/23/2014, 09:29 AM
Updated 07/09/2023, 06:31 AM

DJT At New Closing High

Opinion: Yesterday’s bounce implied by the prior McClellan OB/OS Oscillators oversold condition did help the charts to some degree. As well, some of the sentient data has moderated but still remains cautionary. Nonetheless, we still find it difficult to feel confident about the indexes’ near term prospects. When forward valuations are factored in, we are still brought to the conclusion that the current rally in the indexes has a reasonable probability of experiencing some near term corrective action.

  • On the charts, all of the indexes advanced on slightly higher volume and positive breadth. The DJT (page 3) made a new closing high while the COMPQX managed to close above its near term resistance levels. There were some improvements in the MID and RUT as well. The MID (page 4) closed above its short term downtrend line but remains below an important resistance level. The RUT (page 4) closed above its downtrend line as well while also moving above its 50 DMA. Yet it also remains below its near term resistance like the MID. So there were some improvements but, with the exception of the DJT, no major events occurred.
  • Looking at the data, the prior session’s oversold conditions were resolved to neutral for the McClellan OB/OS Oscillators. All are now neutral (NYSE:-26.11/+12.82 NASDAQ:-21.22/-32.05). And while some of the sentiment data has moderated, there are still some cautionary levels in effect. The OEX Put/Call Ratio (smart money)still shows the pros long puts at 1.45 while the detrended Rydex Ratio (contrary indicator) has dropped to .95 but remains on a bearish signal. The Gambill Insider Buy/Sell Ratio has lifted to a neutral 9.1% as of 7/22 from its previous sell signal.
  • Finally, and of some import, is the fact the SPX is now trading at 15.7X forward 12 month First Call estimates. That is the highest multiple seen in 10 years and is coincident with valuation levels that preceded prior corrections. It is something to consider as the media cheers the markets on.
  • For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.36 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.21 versus the 10 Year Treasury yield of 2.47%.

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