McClellan OB/OS Suggest Rally Pace May Slow
All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes rose on the NYSE and dipped on the NASDAQ from the prior session. Three of the indexes posted new closing highs while others closed above resistance, as discussed below, leaving all but two in near-term uptrends. The data is generally neutral, including the 21-day McClellan OB/OS Oscillators whose prior oversold conditions presaged the recent rally. In our opinion, their current levels may suggest a slowing of the recent progress. Nonetheless, the recent improvements on the charts and market breadth suggest we maintain our current near-term macro-outlook for equities at “neutral/positive”.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ.
- Positive technical events were registered on the SPX (page 2) COMPQX (page 3) and NDX (page 3) as they posted new closing highs.
- However, other positive events were also seen as the DJT (page 4), MID (page 4) and VALUA (page 5) all closed above their respective near-term resistance levels. We are paying very close attention to the MID and VALAU as they are very near important resistance levels that, if violated, may suggest the potential for some notable strength as said levels have been in place for several months.
- As well, the VALUA closed above its 50 DMA.
- As such, all are in near-term uptrends with the exceptions of the RTY and VALUA that are neutral.
- Market breadth remains neutral for the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ after having violated their prior negative trends.
- No stochastic signals were generated.
The data remains mostly neutral.
- The McClellan 1-Day OB/OS Oscillators that suggested the recent rally are neutral versus their prior oversold conditions that may suggest a tempering of the recent rally’s pace (All Exchange: +22.59 NYSE: +12.47 NASDAQ: +30.33).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders remains neutral, edging up to 0.71.
- The Open Insider Buy/Sell Ratio is unchanged and neutral at 46.0.
- This week’s contrarian AAII bear/bull ratio (32.77/35.43) and Investors Intelligence Bear/Bull Ratio at 18.5/51.1 (contrary indicator page 9) both saw a rise in bears and dip in bulls and remain neutral and negative respectfully as their enthusiasm waned.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $205.97 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury yields lifted slightly to 1.29%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10 Year yield into a higher trading range could cause some issues for the markets.
In conclusion, while the McClellan 1-day OB/OS suggest some possible slowing of recent strength, we remain “neutral/positive” in our near-term macro-outlook for equities.
SPX: 4,419/NA
DJI: 35,000/35,495
COMPQX: 14,707/NA
NDX: 15,094/NA
DJT: 14,582/14,820
MID: 2,686/2,732
RTY: 2,200/2,260
VALUA: 9,398/9,633