McClellan 1 Day OB/OS Oscillators Overbought
Opinion: Our expectations of some sideways movement over the past few days have been frustrated as the indexes marched higher. Yet there are still several breadth issues remaining that continue to bother us. As well, we are now seeing some data at levels suggesting some short term caution may be warranted. As such, our near term outlook is neutral to negative for the indexes.
- On the charts, several improvements occurred, albeit on lighter volume, as the SPX and MID (pages 2&4) closed above their 50 DMAs. The SPX, DJI, RUT and MID all closed above resistance levels that are adjusted below. As well, the COMPQX closed at a new 13 year high. Yet breadth concerns remain.
- With the SPX only 15 points from a new closing high barely half (53.6%) are trading above their 50 DMAs suggesting a weak level of participation in the rally. And with the COMPQX making a new closing 13 year high, it’s A/D remains below its 50 DMA and has only recently turned sideways from its prior downtrend. All of this speaks to a market lacking in breadth and thus suspect of future gains. We would also note the SPX, COMPQX, DJT, RUT and MID all now find their respective stochastic levels overbought.
- On the data, the McClellan 1 day OB/OS Oscillators are overbought for the NYSE and NASDAQ (+79.54/+63.53) suggesting a pause if not weakness. The 21 day levels are neutral (+12.14/-1.24). The WST Ratio and its Composite are bearish at 70.7 and 157.7 with the Equity Out/Call Ratio (contrary indicator) now showing the crowd as too bullish post the rally at .50. The balance of the data is neutral.
- In conclusion, it is our opinion that the recent rally has been one of weaker volume while the number of stocks participating has been rather weak, all of which are suggestive of a rally that should be held suspect.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.46% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.60 versus the 10 Year Treasury yield of 2.39%.
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