McClellan OB/OS Remain Neutral
Opinion: Yesterday’s action in the equity markets left nothing new of import to discuss beyond what has been stated in these reports over the past few sessions. While a good portion of the data is now neutral, the NASDAQ internals are still a concern, in our opinion. The charts of the large cap indexes remain intact while the MID and RUT attempt to stabilize post their recent corrections. So while forward valuations are at a 10 year peak with sentiment still on a yellow light, we believe some caution/prudence should be exercised over the relatively near term.
- On the charts, all but the DJI managed to close higher yesterday with the SPX (page 2) and DJT (page 3) making new closing highs. However, and we admit this may be nitpicking, a close look at the DJT chart shows fairly heavy volume with the index close near its lows of the day. This is not to say the new high is not valid. What it may imply is that the surge in volume in concert with price closing near the lows may suggest some viewed the gap up in the index as a selling opportunity. Yet, unless its current uptrend is violated, it may be a one day event. And while the COMPQX advanced, it’s A/D was slightly negative. Beyond that, the MID and RUT (page 4) are starting to approach resistance that will be a point of interest.
- On the data, all of the McClellan OB/OS Oscillators remain neutral (NYSE:-15.59/+17.93 NASDAQ:-18.22/-28.47). The OEX Put/Call Ratio (smart money) and Gambill Insider Buy/Sell Ratio are neutral at 1.08 and 9% respectively. However, the new Investors Intelligence Bear/Bull survey (contrary indicator) still shows an excessive level of bullish advisors at 17.2/56.5. We would also reiterate that the forward 12 month P/E for the SPX is at a 10 year high of 15.7 that is coincident with other past corrections.
- In conclusion, while the large cap indexes remain intact, there is other evidence suggesting prudence be exercised with respect to near term market prospects.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.35 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.21 versus the 10 Year Treasury yield of 2.46%.
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