Some Charts And Breadth See Improvements
McClellan OB/OS Oscillators Back To Neutral
All the major equity indices closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes declined from the prior session. All closed at or near their highs of the day as no significant selling pressure appeared near the close. Several of the index charts saw technical improvements with two turning their near-term trends to neutral from negative while cumulative market breadth saw a slight improvement as well.
On the data side, the 1-day McClellan OB/OS Oscillators returned to neutral post their oversold conditions that suggested yesterday’s rally. The rest of the data remains mostly neutral as well. While it is a bit early to have a high degree of confidence that the recent market correction has been completed, yesterday’s action, in our opinion, suggests it has become more likely.
On the charts, all the major equity indexes closed higher yesterday with positive internals.
- The rally left each index near its highs of the day, resulting in some positive technical events being registered.
- Both the SPX and DJI closed above their near-term downtrend lines and are now neutral while the SPX also closed above its 50 DMA.
- The COMPQX, NDX, and VALUA all closed above resistance with the NDX moving above its 50 DMA. However, they were unable to violate their downtrends.
- As such, we find the SPX and DJI in neutral short-term trends and the rest still negative.
- Cumulative market breadth saw some slight improvement as well with the A/Ds for the All Exchange and NYSE now neutral versus negative. Yet the NASDAQ’S A/D is still in a downtrend.
- No stochastic signals were generated.
Yesterday’s rally pushed the oversold McClellan 1-Day OB/OS Oscillators back into neutral territory (All Exchange: -8.26 NYSE: -12.26 NASDAQ: -6.18).
- The % of SPX issues trading above their 50 DMAs rose to 52% and remains neutral.
- The Open Insider Buy/Sell Ratio dipped slightly to 57.0, yet remains neutral.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders up ticked to 0.77, staying neutral as well.
- This week’s contrarian AAII Bear/Bull Ratio rose to 1.38 as the crowd became more nervous and continues its bullish implications. Bears now widely outnumber bulls. The Investors Intelligence Bear/Bull Ratio (25.3/39.8) (contrary indicator) is still neutral, but the number of bearish advisors rose significantly to 44.2% versus its prior 25.3% level. So, the sentiment indicators are more encouraging as well.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping to $216.16 for the SPX. As such, the SPX forward multiple dropped to 21.5 with the “rule of 20” still finding fair value at approximately 18.5.
- The SPX forward earnings yield is 4.65%.
- The 10-year Treasury yield rose to 1.49%. We view support at 1.38% and resistance at 1.58%.
In conclusion, while yesterday’s action was a welcome encouragement regarding a possible completion of recent volatility, it is still a bit too early to go out on that limb. Nonetheless, we remain “neutral/positive” in our near-term macro-outlook for equities.
SPX: 4,586/4,655 DJI: 34,592/35,993 COMPQX: 15,081/15,416 NDX: 15,789/16,080
DJY: 15,484/16,277 MID: 2,646/2,750 RTY: 2,120/2,220 VALUA: 9,476/9,710