NASDAQ 1-Day OB/OS Oscillator Overbought
The major equity indexes closed mostly lower yesterday with the one exception of the RTY posting a minor gain. What was unusual about the day, in our opinion, is the dips in the indexes occurred with very positive breadth and on higher trading volumes on both the NYSE and NASDAQ. We view that as slightly encouraging as up days with negative breadth have been the typical divergences of late. One chart did turn neutral from positive, but the bulk of the indexes remain in near-term uptrends as does market breadth. The data saw two cautionary signals appear while the rest remain neutral. As such, the market dip on positive breadth while some data turned yellow does not warrant a change in our current “neutral/positive” macro-outlook for equities, in our opinion.
On the charts, all the indexes closed lower yesterday except the RTY (page 5) posting a minor gain.
- As noted above, what was unique was the fact that the dips occurred with positive market breadth on higher trading volumes. We would view that anomaly as somewhat encouraging.
- Two technical events of note were generated, however. The DJT (page 4) closed below its 50 DMA but remains in a near-term uptrend while the MID (page 4) closed below its near-term uptrend line and is now neutral versus its prior positive trend.
- The DJI (page 2) trend remains neutral as well with the balance in short-term uptrends.
- Market breadth finds the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ staying short term positive.
- No stochastic signals were generated.
The data saw a few shifts. The McClellan 1-Day OB/OS Oscillators find the NASDAQ 1-day now overbought with the rest neutral (All Exchange: +44.83 NYSE: +24.6 NASDAQ: +59.19).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders saw a notable jump to 1.43 as the ETF traders significantly increased their leveraged long exposure and is now in bearish territory.
- The Open Insider Buy/Sell Ratio was unchanged at a neutral 38.5.
- This week’s contrarian AAII bear/bull ratio saw an increase in bears and bulls, remaining neutral (32.77/35.43) with Investors Intelligence Bear/Bull Ratio at a bearish 18.5/50.0 (contrary indicator page 9) as a few advisors left the bull camp.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $207.09 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 4.58%.
- The 10-year Treasury yield rose to 1.3% but remains within its current trading range with resistance at 1.4% and 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, yesterday’s action did not present enough evidence to alter our current “neutral/positive” near-term macro-outlook for equities.
SPX: 4,440/NA
DJI: 35,000/35,495
COMPQX: 14,823/NA
NDX: 15,139/NA
DJT: 14,660/14,952
MID: 2,710/2,780
RTY: 2,200/2,300
VALUA: 9,553/9,835