McClellan 1-Day OB/OS Oscillators Overbought
Opinion
Yesterday’ rise for the major equity indexes occurred on good volume and breadth. However, although some of the indexes managed to rise above their respective near term resistance levels on an intraday basis, none of them were able to maintain that position by the close. As such, the short term resistance levels remain intact as we find the 1 day McClellan OB/OS Oscillators overbought, all of which suggest to us the near term outlook for the indexes is neutral to slightly negative.
- On the charts, there was one positive technical development as the DJT (page 3) managed to close above its 50 DMA. As well, up/down volumes and the A/Ds were positive. However, of greater import in our opinion is the fact that a number of the indexes rose above their short term resistance levels (see below) intraday but none managed to close above at the end of the session. As such, said resistance levels remain intact and, in our opinion, are likely to be an important barrier requiring further work.
- The data has turned a bit more cautionary as well, although not extremely so. The 1 day McClellan OB/OS Oscillators are now overbought on the NYSE (+94.38) and NASDAQ (+72.11) suggesting there is little fuel left to continue the recent advance. The 21 day levels are neutral; at -6.2 and -30.7 respectively. As well, we now find the AAII Bear/Bull Ratio (contrary indicator) flip flopping again as, after the notable rally off of the lows, bulls are once again swamping bears at 22.5/49.69. The Rydex Ratio (contrary indicator) also shows the leveraged ETF traders once again inflated with bullish confidence at 45.1. The rest of the data is essentially neutral.
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- In conclusion, it is our opinion that there is a reasonable probability based on the charts and data that the major equity indexes will likely pause their advance if not see some retracement over the short term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.58% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.41 versus the U.S. 10-Year yield of 2.28%.
- S&P 500: 1,905/1,950
- Dow 30: 16,308/16,680
- NASDAQ Composite: 4,255/4,465
- Dow Jones Transportation: 8,223/8,500
- S&P Midcap 400: 1,330/1,373
- Russell 2000 1,075/1,121