McClellan OB/OS Oscillators Mostly Neutral
Opinion
Our apologies for the late note this morning due to a delay in data retrieval. The indexes succumbed to overbought conditions yesterday as all of them closed lower and at or near their lows of the day. Internals were negative but volumes declined on the drop. Given the current state of the charts and data we are inclined to see the near term prospects for the indexes as neutral as volume resistance levels have yet to be violated.
- On the charts, all of the indexes closed lower with the DJT (page 3) closing back below its 50 DMA. Earlier in the session, all but the COMPQX tested their near term volume resistance levels but as the news from Canada hit the tape, all of the attempts failed with the charts closing at their lows of the day. However, there is a slightly positive message coming from the A/Ds for the All-Exchange, NYSE and NASDAQ exchanges as their A/D lines have moved above their prior disconcerting downtrend lines. The implication is that of some improvement in market breadth. As such, given resistance and the internals, we suspect some further work may need to be done before said resistance can be overcome.
- The data saw some improvement as a result of the sell-off. All of the McClellan OB/OS Oscillators have returned to neutral (NYSE:+59.37/-16.47 NASDAQ:+38.33/-34.41) with the exception on the NYSE 1 day that remains a bit overbought. The Total and Equity Put/Call Ratios (contrary indicators) are sending a more positive message as the “crowd” is heavy in puts at 1.14 and .74 respectively. The WST Ratio and its Composite are back to neutral at 40.2 and 124.0 after yesterday’s “bear alert” signal. As well, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors remain neutral at 18.2/35.3. The one data outlier is the OEX Put/Call Ratio (smart money) at 2.25 showing the pros long puts and expecting weakness.
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- In conclusion, yesterday’s action left resistance intact but the drop in volume and neutral data suggest to us further work needs to be done to overcome said resistance.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.66% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.41 versus the 10-Year Treasury yield of 2.23%.
- S&P 500: 1,905/1,950
- Dow 30: 16,308/16,660
- NASDAQ Composite: 4,244/4,465
- Dow Jones Transportation: 8,059/8,500
- S&P Midcap 400: 1,315/1,373
- Russell 2000: 1,075/1,121