OB/OS Oscillators Still Neutral
Opinion
All of the indexes closed lower yesterday with negative internals as volumes rose on the NYSE but declined on the NASDAQ. No major new technical signals were given. Most of the data remains neutral, giving no strong short term directional implications. However, although we may see a pause here, the overall picture continues to suggest some deterioration has taken place and may not yet be completed. As such we remain cautious for both the near and intermediate term for the indexes as a whole.
- On the charts, no major new signals were given as all if the indexes closed lower yesterday. There are only two points worth noting this morning. The SPX (page 2), although holding above support, did close below its intermediate term uptrend line that had been in place since last October’s lows casting another shadow. On the other hand, the DJT, after testing its 200 DMA yesterday, is now oversold on its stochastic reading. However, said stochastic can stay oversold for extended periods. We would need to see a bullish crossover signal from the DJT to become more positive.
- The data remains largely neutral including all of the McClellan OB/OS Oscillators (NYSE:-36.67/-15.23 NASDAQ:-36.78/18.86). The OB/OS are not oversold that would be suggestive of a bounce. The Equity Put/Call Ratio is a neutral .58 along with the WST Ratio and its Composite at 44.9 and 109.0. And while the Gambill Insider Buy/Sell Ratio remains neutral at 9.3, its further decline suggests that instead of insiders buying into weakness, they have in fact been increasing their selling activity. Insiders buying on declines are an encouragement. That is not the case at this point. The new AAII Bear Bull Ratio (contrary indicator) is also neutral at 24.38/38.43 while the Rydex Ratio (contrary indicator) continues to show the leveraged ETF traders heavily leveraged long.
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- In conclusion, there is not enough evidence coming from the data, in our opinion, to suggest the recent decline in the markets is complete. So although we may see a pause, we remain cautious for the near term. Valuation continues to keep us cautious for the more intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.99% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $123.22 versus the U.S. 10-Year yield of 2.01%.
- S&P 500: 2,050/2,088
- Dow Jones 30: 17,642/17,970
- NASDAQ Composite; 4,848/4,956
- Dow Jones Transportation: 8,647/9,002
- S&P Midcap 400: 1,496/???
- Russell 2000: 1,236/1,262