McClellan OB/OS Oscillators Neutral
Opinion:
The markets closed higher with some new closing highs being achieved while other indexes continue to lag. As such, the split performance of the indexes continues. While internals and sentiment remain a concern, the large cap indexes remain in uptrends with the McClellan OB/OS Oscillators neutral across the board. As such, those uptrends remain intact. However, given current valuations, poor breadth and sentiment, we still believe some caution is warranted as advances become increasingly selective.
- On the charts, The SPX (page 2), DJI (page 2) and DJT (page 3) all posted new closing highs yesterday as the large cap stocks continue to rule. The COMPQX (page 3) closed above its short term downtrend line but below near term resistance. The futures this morning suggest this resistance will be broken.
- Meanwhile, the MID (page 4) and RUT (page 4) remain in their near term downtrends and below resistance. So the split performance between the large caps and mid-small caps continues. The NASDAQ A/D is still below its 50 DMA while the % of stocks in the SPX trading above their 50 DMAs is at a paltry 61.6% and well below the 80% level of the last new high for the index. It is this notable narrowing of breadth as higher highs are being made that still bothers us. It shows an increasingly selective market instead of one where more stocks should be participating during a healthy advance.
- The data is mostly neutral including all of the McClellan OB/OS Oscillators (NYSE:-29.71/-6.51 NASDAQ:-6.42/-9.88). The pros have suddenly turned bullish with a low OEX Put/Call Ratio of 0.54. The “crowd” remains overly bullish with a 58.0 Rydex Ratio (contrary indicator) and the new AAII Bear/Bull Ratio of 22.98/42.24. Thus, the data is fairly evenly matched and directionless at this point.
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- In conclusion, the large cap indexes appear to be continuing their march North while the mid-small caps flounder about. Yet narrowing participation remains a concern along with the 15.7X forward 12 month earnings for the SPX at a decade high suggesting mistakes will not be taken lightly.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.38% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.46 versus the 10 Year Treasury yield of 2.63%.
- SPX: 1,979/?
- DJI: 16,980/?
- NASDAQ: 4,453/4,594
- DJT: 8,465/?
- MID: 1,410/1,427
- RUT: 1,137/1,159