McClellan OB/OS And Stochastic Levels Oversold
The major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as trading volumes dipped from the prior session. All closed near their lows of the day as all but one closed below their respective support and hammer levels.
As such, all the index charts remain in near-term downtrends as does cumulative market breadth with no reversal signals appearing thus far. However, the McClellan 1-day OB/OS Oscillators moved deeper into oversold territory while the stochastic levels on the index charts are deeply oversold as well.
As such, as the indexes have gone through significant corrections of late, we remain of the opinion that some period stabilization may be in the offering given the current oversold conditions.
On the charts, the major equity indexes closed lower yesterday with negative internals as trading volumes dipped from the prior session. All closed near their intraday lows with only the DJT not closing below its support level. As well, the “hammer” levels discussed here also failed.
They are typically seen near correction lows. However, that is not the case this time. So, all the index charts remain in near-term downtrends and below their 50 DMAs as do the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. There is a glimmer of hope coming form the stochastic levels that are deeply oversold. Yet, bullish crossover signals have yet to appear.
The data finds the McClellan 1-Day OB/OS Oscillators moved deeper into oversold territory as well and implying some bounce potential (All Exchange: -74.15 NYSE: -72.46 NASDAQ: -77.82).
- The % of SPX issues trading above their 50 DMAs slipped to 44% and remains neutral as the Open Insider Buy/Sell Ratio lifted to 47.3, staying neutral as well.
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders was unchanged at 0.74 and remains neutral as said traders remain nervous.
- 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) 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 $222.44 for the SPX. As such, the SPX forward multiple was unchanged at 20.4 with the “rule of 20” finding ballpark fair value at 18.2.
- The SPX forward earnings yield is 4.91%.
- The 10-year Treasury yield slipped to 1.83%. We view support for the 10-Year at 1.60% with resistance at 1.93%. In our opinion, this resistance may prove to be a barrier to a further rise in yield over the near-term as it is at the level seen on Jan. 7 of 2020 just prior to the COVID breakout that shook the equity markets and bond prices.
In conclusion, yesterday’s session did nothing to alter the current market weakness that has yet to show signs of abating. However, oversold conditions on the OB/OS and stochastic levels suggest the potential for some relief.
SPX: 4,509/4,623 DJI: 34,907/35,784 COMPQX: 14,270/14,910 NDX: 14,936/15,559
DJT: 15,583/16,000 MID: 2,682/2,744 RTY: 2,000/2,140 VALUA: 9,432/9,693