All McClellan OB/OS Levels Neutral
Opinion
Yesterday’s continuation of the bounce off of the recent correction lows was impressive from several angles. Internals were very positive while volumes, although below the prior session, remained quite strong. All of the indexes closed near their highs of the day while almost all of them also closed above resistance and their near term downtrend lines. Meanwhile, the data remains mostly neutral suggesting some further upside likely over the near term.
- On the charts, multiple short term improvements were seen as the indexes advanced on strong volume with broadly positive internals. All of the indexes closed at their intraday highs as buying interest never abated. Positive technical signals came in the following forms. The SPX (page 2), DJI (page 2), COMPQX (page 3), MID (page 4) and RUT (page 4) all closed above resistance while violating their respective short term downtrend lines on a closing basis. The DJT (page 3) also closed above its short term downtrend line but failed to rise above resistance. So, technically, it was an exceptionally good day.
- The data remains largely neutral suggesting, in our opinion, that some further upside still remains probable over the near term. There are no overbought signals coming from the McClellan OB/OS Oscillators that are all at neutral levels (NYSE:+5.84/+0.41 NASDAQ:+23.85/+0.81). The new AAII Bear/Bull Ratio (contrary indicator) has moderated to neutral at 26.88/38.74 as of 12/18 suggesting the crowd has shed some of its enthusiasm of late. All of the Put/Call Ratios are neutral on their 1 day readings while the Gambill Insider Buy/Sell Ratio remains neutral as well at 22.3. The only cautionary signals are coming from the Rydex Ratio at 64.7 and the WST Ratio and its Composite at 85.9 and 203.5. As such, the data, in our opinion, now suggests little in the way of headwinds over the near term.
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- For the intermediate term, the forward 12 month p/e for the SPX based on forward 12 month estimates from First Call remains at a decade high of 16.2 as said estimates have steadily declined over the past several weeks. Eventually, earnings matter and , in our opinion, current levels suggest a respectable amount of risk exists from that metric.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.16% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.05 versus the U.S. 10-Year yield of 2.20%.
- S&P 500: 2,016/2,066
- Dow 30: 17,390/17,812
- NASDAQ Composite: 4,627/4,755
- Dow Jones Transportation: 8,631/9,110
- S&P Midcap 400: 1,415/1,447
- Russell 2000: 1,156/1,191