McClellan OB/OS & Stochastic Levels Strongly Suggest Relief
The major equity indexes closed lower Thursday with negative internals on the NYSE and NASDAQ as trading volumes rose on both exchanges as recent selling pressure persisted. All closed at or near their lows of the day with all but one closing below their respective support levels.
As such, all remain in near-term downtrends and have yet to show signs of a reversal of recent weakness via price and trend. However, we are now of the opinion that some relief may be on the horizon as the stochastic levels on the charts are in low single digits that have been coincident with rallies of import multiple times over the past year. As well, the 1-dayMcClellan OB/OS Oscillators are just shy of being extremely oversold as the rest of the data remains neutral. So, while the bears have been pounding the bulls of late, we are seeing stochastic and OB/OS levels that suggest some relief of recent pressure may be in the offering.
Should the indexes manage to close positive today after a weak open, that would tend to support our speculation of said relief.
On the charts, the major equity indexes closed lower yesterday with negative internals as trading volumes rose from the prior session.
- All violated support except the RTY. As such, all are still in near-term downtrends and below their 50 DMAs.
- Market breadth continued to weaken also with the All Exchange, NYSE and NASDAQ cumulative advance/decline lines negative and below their 50 DMAs.
- However, we would draw attention to the stochastic levels on each of the charts. They are extremely oversold and at levels coincident with notable market rallies multiple times over the past year (as noted on the charts). We find that suggestive of some near-term relief.
The data finds the McClellan 1-Day OB/OS Oscillators are just shy of being extremely oversold, sending a similar signal as the stochastic readings (All Exchange: -93.38 NYSE: -98.7 NASDAQ: -91.86).
- The % of S&P 500 issues trading above their 50 DMAs slipped to 35% and remains neutral as the Open Insider Buy/Sell Ratio (page 9) lifted to 50.2, staying neutral as well.
- The detrended Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders rose to 0.78 and remains neutral.
- This week’s contrarian AAII Bear/Bull Ratio is 0.98, also staying neutral. The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator page 9) remains neutral as the number of bulls and bears dropped from the prior week.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $221.84 for the SPX. As such, the SPX forward multiple slipped to 20.2 with the “rule of 20” finding ballpark fair value at 18.2.
- The SPX forward earnings yield is 4.95%.
- The 10-year Treasury yield was unchanged at 1.83%. We view support for the 10-Year at 1.60% with resistance at 1.93%.
In conclusion, while yesterday’s slide continued the recent pain, leaving chart trends and breadth in poor shape, the magnitude of the recent selloff has pushed the stochastic and McClellan levels to points that preceded rallies of import multiple times over the past year. Should the markets close positive on the day, post a weak open, that would support our assumption of some relief.
SPX: 4,441/4,575 DJI: 34,707/35,784 COMPQX: 14,154/14,641 NDX: 14,778/15,324
DJT: 15,430/15,900 MID: 2,631/2,722 RTY: 2,000/2,140 VALUA: 9,386/9,524