McClellan 1-Day OB/OS Oscillators Remain Overbought
Opinion
Once again we saw the markets rise yesterday as volumes remained light, an issue we consider to be suggestive of a lack of real institutional buying interest. There were some technical improvements on the charts. Yet some cautionary signals are now also present in that regard. As well, the McClellan 1 day OB/OS Oscillators are overbought all of which suggests caution remains warranted for the near term, in our opinion.
- On the charts, some improvements came as follows. The SPX (page 2) closed fractionally above resistance that is now adjusted to 1,985 while the DJI (page 2) closed above its 50 DMA but halted at resistance. The COMPQX (page 3) made a new 14 year closing high. However, as noted on the chart, it is now encountering a “return line” that halted the prior advance in July. The RUT (Page 4) closed above its 50 MDA and resistance.
- We see the following as cautionary technical signals counterbalancing the improvements. In addition to the COMPQX return line, the DJT (page 3) formed a “gravestone doji” suggesting the possible exhaustion of the recent rally while all but the DJI see their respective stochastic readings overbought in the 90s. The DJI is at an overbought 86. These stochastic readings do not become bearish until they cross back below the 80 signal line. Nonetheless, they do suggest overbought conditions exist.
- We would again note that with the SPX just shy of a new high, only 59.4% of its components are above their 50 DMAs, poor breadth, while the NASDAQ A/D remains below its 50 DMA, also suggesting poor breadth.
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- The data remains somewhat of a mixed bag and largely neutral. Yet the 1 day McClellan OB/OS Oscillators are overbought for the NYSE (+87.44) and NASDAQ (+62.54) with the OEX Put/Call Ratio (smart money) showing the pros have moved largely back into puts at 1.52 and expecting weakness. The Total Put/Call Ratio (contrary indicator) is at a bullish .90. As such, the data is tilting negative.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.43% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.45 versus the 10 Year Treasury yield of 2.40%.
- SPX: 1,960/1,985
- DJI: 16,600/16,920
- NASDAQ: 4,407/?
- DJT: 8,211/8,457
- MID: 1,396/1,421
- RUT: 1,120/1,169