McClellan OB/OS Oscillators Return To Neutral
Opinion
All of the indexes closed lower yesterday with broadly negative internals on the NYSE and NASDAQ as volumes rose from the prior session, qualifying as a day of distribution. All closed at or near their intraday lows. However, in spite of the declines, all of the near term uptrends on the charts remain intact. The data is a bit mixed but the McClellan OB/OS Oscillators that were flashing some warning signs yesterday morning have now returned to neutral levels. So while investor sentiment (contrarian indicator) still suggests too much enthusiasm exists, we remain of the opinion that the current near term trends of the indexes should continue to be respected until proven otherwise.
- On the charts, all of the indexes closed lower yesterday with negative internals on higher trading volume on both the NYSE and NASDAQ. The high volume and broadly negative breadth suggest it was a day of institutional distribution. Something we haven’t seen in a while. However, the poor performances of the indexes did not violate any of the near term uptrend lines or support levels on the charts. Given the market strength since the beginning of the New Year and the data signals yesterday, some digestion of the gains would not be unusual. So while there was no technical “damage” registered, the question is whether or not there is more to come. Given our discipline, until trend lines or support levels are violated, the trends should be respected on the charts.
- The data improved on the McClellan OB/OS Oscillators that were mostly overbought yesterday morning. They have returned to neutral levels across the board (All Exchange:+5.31/+42.17 NYSE:-8.87/+49.63 NASDAQ:+18.06/+35.62). The put/call ratios are counterbalancing with bearish signals coming from the Total (0.69) and Equity (0.49) ratios while the OEX is a bullish 0.82. In our opinion, the most worrisome data at this point is investor sentiment (contrary indicator) that finds very high levels of bullish expectations with a 13.5/64.4 Investors Intelligence Bear/Bull Ratio and a 20.0/53.0 AAII Bear/Bull Ratio.
- In conclusion, while yesterday’s action was negative, it was not sufficient to alter our belief the near term uptrends of the indexes should still be respected until proven otherwise.
- Forward 12-month earnings estimates for the SPX from Bloomberg were raised to $150.85, leaving a 5.4 forward earnings yield on a 18.4 forward multiple.
- SPX: 2,671/NA
- DJI: 24,678/NA
- NASDAQ: 6,890/NA
- NDX: 6,400/NA
- DJT: 10,582/NA
- MID: 1,893/NA
- Russell: 1,550/NA
- VALUA: 6,072/NA