All Indexes Turn Short-Term Positive

1-Day McClellan OB/OS Suggest Pause

All of the indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as volumes rose from the prior session. All of the index charts closed above short term resistance and are now in positive near term uptrends. However, the data is mixed with the 1 day McClellan OB/OS Oscillators implying potential for a pause/retracement of recent gains. Nonetheless, we are maintaining our near term “neutral/positive” short term outlook for the major equity indexes.

• On the charts, all of the indexes closed higher yesterday with positive breadth and up/down volume as overall volume rose from the prior session on both exchanges. Virtually every index closed above short term resistance with the DJI (page 2) actually managing to close back above its 50 DMA. As well, all of the short term trends for the indexes are now positive while cumulative breadth continues to improve on the All Exchange, NYSE and NASDAQ but remain below their 50 DMAs.

• The data is mixed with the 1 day McClellan OB/OS Oscillators overbought and quite so on the NYSE (All Exchange:+97.74/-21.7 NYSE:+105.92/-11.09 NASDAQ:+93.28/-24.99). The 21 day readings remain neutral. The % of SPX stocks trading above their 50 DMAs has lifted to 47.8% while insiders have backed off of their prior heavy buying activity to a neutral 86.0 Open Insider Buy/Sell Ratio. This is not unusual given the fact that the DJI is now 2,000 points higher than its intraday low on 10/29. What remains encouraging is the detrended Rydex Ratio (contrary indicator page 8) still finds the leveraged ETF traders at extremely leveraged short levels coincident with market lows since 2009 at -2.32. We suspect they are now in a position of being forced to cover their shorts on any market weakness. Seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation, assuming current estimates hold, is approaching fair value with the forward 12-month earnings estimates for the SPX via Bloomberg of $171.74, leaving the forward 12-month p/e for the SPX at 16.4 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.1%.

• In conclusion, given the current condition of the charts and data, they suggest we maintain our near term “neutral/positive” outlook for the major equity indexes although some pause/consolidation may now occur.
• SPX: 2,739/2,817
• DJI: 25,471/26,398
• NASDAQ: 7,334/7,639
• NDX: 7,016/7,275
• DJT: 10,380/10,746
• MID: 1,869/1,917
• Russell: 1,529/1,618
• VALUA: 6,081/6,243