McClellan OB/OS Overbought
Opinion: All of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ. Volumes declined from the prior session on the NYSE while NASDAQ volumes rose. There were several improvements on the index charts while the data saw both positive and negative developments. We are of the opinion the data is now implying potential for some pause due to the overbought conditions of the OB/OS oscillators while valuation and some psychology measures are counterbalancing. Our core concerns persist. However, the bulk of the near term trends are positive and should be respected, in our opinion.
- On the charts, all of the indexes closed higher yesterday with positive internals. Several technical improvements were registered including the SPX (page 2) making a new closing high above prior resistance. The DJI (page 2) and DJT (page 3) closed above prior resistance as well while the RTY (page 4) and VALUA (page 5) closed back above their 50 DMAs. As such, we now find the bulk of the near term trends for the indexes positive with the exceptions of the MID (page 4) and VALUA remaining neutral. All of the cumulative advance/decline lines are positive and above their 50 DMAs.
- The data is now giving some conflicting signals. All but one of the McClellan OB/OS Oscillators are now in overbought territory (All Exchange:+57.92/+54.16 NYSE:+57.17/+66.26 NASDAQ:+61.75/+44.86) while the OEX Put/Call Ratio finds the pros betting on expected weakness as they are long puts at 1.9. On the other side of the scale, psychology saw some improvement as the new AAII Bear/Bull Ratio (contrary indicator) now finds bears outnumbering bulls 37.33/27.33 among the crowd. We would also note the recent rally has pushed the forward p/e for the SPX based on 12 month forward earnings estimates back to its recent peak at an 18.1 multiple.
- In conclusion, while some of our concerns persist and the oscillators suggest some pause/retracement possible, we remain of the opinion that the current trends should still be respected until proven otherwise.
- Forward 12 month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56 forward earnings yield on a 18.1 forward multiple, near a decade high.
SPX: 2,446/NA
DJI: 21,724/22,095
NASDAQ: 6,300/NA
DJT: 9,234/9,550
Mid: 1,713/1,745
RTY: 1,385/1,424
VALUA: 5,425/5,599