NYSE and NASDAQ 1-Day McClellan OB/OS Oversold
Opinion
Yesterday’s action in the equity markets left some damage on the charts of some of the major indexes while breadth was negative along with Up/Down Volume while overall volumes increased. As there is still some troubling sentiment data present, in spite of the 1-day McClellan OB/OS Oscillators being oversold, we remain of the opinion that the near-term outlook for the major equity indexes is neutral to negative.
- On the charts, there were multiple issues triggered yesterday. The NASDAQ (page 3), MID (page 4) and RUT (page 4) all closed below their near-term support levels while the RUT closed back below its 50 DMA as well. The MID closed below its long term uptrend line casting another shadow. And although the SPX had a minor loss with the DJI closing higher, the fact that decliners on the NYSE outpaced advances by a 2:1 ratio calls the large cap stability into question, in our opinion. Breadth continues to deteriorate as the ALL-Exchange, NYSE and NASDAQ A/Ds all closed below their 50 DMAs. In short, the charts have weakened as institutional distribution continues as suggested by higher down volume and poor breadth.
- Looking at the data, the NYSE and NASDAQ 1-day McClellan OB/OS Oscillators are both oversold at -93.21 and -55.72 respectively. However, their 21-day levels remain only neutral at +1.8 and -9.35. The WST Ratio and its composite remain neutral as well at 47.4 and 120.7.
- We continue to be concerned with investor sentiment as the Rydex Ratio (contrary indicator) still shows leveraged ETF traders too bullish at 59.0 as they continue to turn a blind eye to market internals. Meanwhile, the pros measured by the OEX Put/Call Ratio remain cautious and long puts at 1.4.
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- In conclusion, while the 1-day OB/OS oversold conditions imply some support, they remain the only positive signal among a host of other concerns. As such, we remain of the opinion that the weight of the evidence continues to send a neutral to negative message for the markets over the near term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.47% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.46 versus the 10 Year Treasury yield of 2.59%.
- SPX:1,979/?
- DJI: 16,980/17,140
- NASDAQ: 4,453/4,594
- DJT: 8,294/?
- MID: 1,410/1,438
- RUT: 1,137/1,172