McClellan 1-Day OB/OS Oscillators Remain Oversold
The major equity indexes closed higher yesterday 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 late session selling failed to appear. There were a few positive technical events on the charts. However, only one index is not in a near-term downtrend. Yet, while the charts and market breadth remain negative, the data is continuing to send some positive signals as the 1-day McClellan OB/OS Oscillators remain nicely oversold while corporate insiders continue to accelerate their buying activity and stochastic readings remain very oversold. As such, the combination of the charts and data suggest we maintain our near-term “neutral/positive” macro-outlook for equities.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes dipped from the previous session on both. The fact that they closed near their highs of the day is somewhat encouraging.
- Regarding positive technical events, the COMPQX (page 3) closed above its near-term downtrend line and is now neutral versus its prior bearish trend. However, all the other indexes remain in near-term downtrends.
- Also, the SPX (page 2), COMPQX and DJT (page 4) closed back above their 50 DMAs.
- Positive breadth yesterday was not strong enough to alter the current negative trends for the cumulative advance /decline lines for the All Exchange, NYSE and NASDAQ.
- Stochastic levels remain deeply oversold on all the indexes. However, bullish crossovers have yet to appear.
Looking at the data, the McClellan 1-Day OB/OS Oscillators remain oversold despite yesterday’s strength (All Exchange: -80.68 NYSE: -75.32 NASDAQ: -82.73). They suggest potential for further strength, in our opinion.
- The % of SPX issues trading above their 50 DMAs rose to 43% and remains neutral.
- Importantly, the Open Insider Buy/Sell Ratio (page 9) rose to 74.4 as insiders continued to accelerate their buying as the crowd has headed for the exits.
- The detrended Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders was unchanged at 1.07. They have been decreasing their leveraged long exposure throughout the recent correction. It remains cautionary.
- This week’s contrarian AAII Bear/Bull Ratio rose to 0.75, remaining neutral. The Investors Intelligence Bear/Bull Ratio (21.7/54.6) (contrary indicator page 9) is still neutral although the number of bullish advisors declined.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $215.79 for the SPX. As such, the SPX forward multiple is 21.2 with the “rule of 20” finding fair value at approximately 18.6.
- The SPX forward earnings yield is 4.71%.
- The 10-year Treasury yield rose to 1.45. We view support at 1.38% and resistance at 1.62%.
In conclusion, we remain “neutral/positive” in our near-term macro-outlook for equities largely due to the OB/OS levels, increasing insider buying activity, stochastic readings and the fact that we have recently seen data levels at what have typically been registered at market correction lows.
SPX: 4,473/4,588
DJI: 33,856/35,006
COMPQX: 15,019/15,4720
NDX: 15,643/16,134
DJT: 14,924/15,492
MID: 2,621/2,776
RTY: 2,130/2,250
VALUA: 9,204/9,703