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NYSE: Still Expecting Short Term Weakness

Published 10/13/2015, 08:20 AM
Updated 07/09/2023, 06:31 AM

McClellan OB/OS Remain Overbought

Opinion: The indexes closed mixed yesterday with mixed internals as volumes declined on both exchanges. While a minor improvement was made on one of the charts, the overall internals in combination with some of the data continue to suggest to us that risk outweighs reward over the near term. And while the NASDAQ A/D managed to creep above its 50 DMA, we are not yet convinced that there is enough evidence to alter our neutral intermediate term opinion.

  • On the charts, the indexes closed mixed with some minor gains being achieved as volumes declined notably. Internals were mixed on the NYSE as the A/D was positive but down volume was almost double up volume. NASDAQ internals were negative on both counts. The COMPQX (page 3) did manage to edge just above its 50 DMA but remains below its downtrend line and 50 DMA. While stochastic levels should only be used for confirmation, the fact that their levels are well into the upper 90s in every case does suggest risk, especially if we see bearish crossover signals occur over the near term.

  • While the data remains mixed, the McClellan OB/OS Oscillators remain overbought in all but one case (NYSE:+117.57/+54.58 NASDAQ:+74.79/+1.05). The NYSE 1 day is particularly over bought. While sideways action can deplete these current signals, the OB/OS history over the past several months has not done so. We have usually seen the oscillators go from one extreme to the other over the course of a few weeks. In our opinion, the probability exists that this syndrome is likely to repeat itself. With the WST Composite at 155.0 remaining bearish as well, it adds a little more weight to our concern. The balance of the data is rather neutral at this stage.
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  • Looking at the intermediate term, the NASDAQ A/D did manage to close barely above its 50 DMA but it has yet to make a higher high that would give us greater confidence to alter our current neutral opinion.

  • In conclusion, We continue to believe caution is an appropriate strategy for the near term while the intermediate timeframe remains neutral.

  • For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.29% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.83 versus the 10 Year Treasury yield of 2.09%.

SPX: 1.951/2,044

DJI: 16,481/17,284

COMPQX; 4,552/4,830

DJT: 7,850/8,427

MID: 1,385/1,462

RUT: 1,103/1,163

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