Most McClellan OB/OS Oscillators Neutral
Opinion
Our next report will be Monday the 29th. Yesterday’s gains from the oversold conditions noted in yesterday’s comments appeared sizable on the surface. However as volumes declined versus the selloff, market internals remaining disturbing and sentiment still suggesting investors are too sanguine regarding market prospects, we are of the opinion that the bounce was one within a short term downtrend that has the higher probability of continuing.
- On the charts, even with the sizable point gains yesterday on the large cap indexes, there was not nearly as much improvement as one would expect. On the positive side, the DJI (page 2) did close above resistance and the RUT (page 4) pulled back above its long term uptrend line.
- However, the SPX (page 2) remains below resistance, the COMPQX (page 3) remains below its short term downtrend line, along with the RUT and MID (page 4). As well, the DJT (page 3) was unable to move back above its short term uptrend line which it violated in the prior session. The bifurcation of the markets continues as well as the RUT and MID saw only minor gains and remain technically disturbing. Breadth was positive yesterday but volumes declined versus the selloffs remaining a problem, in our opinion. Finally, overall breath remains weak as the % of SPX stocks above their 50 DMAs remains a low and paltry 53% with the All-Exchange, NYSE and NASDAQ A/Ds below their 50 DMAs and in downtrends. The ValueLine Arithmetic is also still below its 50 DMA.
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- The data now finds only the NYSE 1 day McClellan OB/OS Oscillator oversold at -78.27 with a neutral -45.06 on its 21 day. Both of the NASDAQ OB/OS are neutral (-48.13/-40.28). So the extreme oversold conditions have been remedied for the most part. The WST Ratio and its Composite are both bearish at 74.9 and 154.0 as the Rydex Ratio (contrary indicator) remains a cautionary 56.3. The new Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors unfazed at 15.3/48.0 and still too bullish.
- In conclusion, based on the charts and data, we see the markets near term prospects returning to neutral/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 $128.46 versus the 10 Year Treasury yield of 2.57%.
- SPX: 1,979/2,010
- DJI: 17,009/17,162
- NASDAQ: 4,481/4,594
- DJT: 8,398/?
- MID: 1,376/1,427
- RUT: 1,116/1,159