NYSE McClellan OB/OS Oscillators Overbought
Opinion
Our next report will be Tuesday, September 2nd. Yesterday’s uneventful action came on very light volume leaving little changed on the charts with one minor event. However, sentiment data is, in some cases, now reaching levels of a warning nature. Given current valuations, the charts and data suggest some neutral to somewhat negative action over the near term, in our opinion.
- On the charts, the light volume left the indexes mixed on the day with little movement. The only chart issues worthy of note, in our opinion, are the DJI (page 2) testing but failing to surpass resistance while the DJT (page 3) closed below its short term uptrend line as noted on its chart. The DJT’s action suggests some sideways to possibly negative action over the short term. As it has been the leading index by our work, its near-term action could be of greater import.
- The data has seen some shifting of late. The NYSE 1 and 21 day McClellan OB/OS Oscillators are both in overbought territory at +64.13 and +53.87 respectively. Both of the NASDAQ OB/OS levels are neutral (+46.4/+26.24). Some of the sentiment data is once again flashing warning signals. The Rydex Ratio (contrary indicator) shows the leveraged ETF traders have returned to their prior overly bullish outlook at 58.1 while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) also shows a dearth of bears at 15.1/52.5. Both suggest an overly optimistic “crowd”. Meanwhile the OEX Put/Call Ratio (smart money) shows the pros suddenly loading up on puts at a very bearish 1.98 as they apparently expect some near term weakness. As well, the WST Ratio and its Composite are both bearish at 69.0 and 150.7.
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- In conclusion, with the forward 12 month P/E for the SPX at a decade high of 15.7 leaving little room for error and the sentiment data on yellow lights, we suspect the near term prospects for the major indexes to most likely be neutral to negative.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.37% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.44 versus the 10 Year Treasury yield of 2.36%.
- SPX: 1,975/?
- DJI: 16,980/17,140
- NASDAQ: 4,450/?
- DJT: 8,294/8,457
- MID: 1,420/1,444
- RUT: 1,160/1,180