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Market Pause Continues

Published 08/09/2022, 10:09 AM
Updated 07/09/2023, 06:31 AM

McClellan 1-Day OB/OS Oscillators Remain Overbought

The major equity indexes closed mixed again Monday with positive internals on the NYSE and NASDAQ as trading volumes lifted on both. All but one closed near their intraday lows. However, once again, there were no violations of support or trend, leaving all in near-term uptrends and above their 50 DMAs, with one index closing above resistance. Yet, while the charts and market breadth remain encouraging, the data continues to imply some further pause/consolidation of the sizable gains achieved from the June lows.

The McClellan OB/OS Oscillators are overbought while the high level of investor fear, which we believe was instrumental in powering the rally, has abated notably while forward 12-month consensus earnings estimates via Bloomberg continue to be shaved. So, while we remain constructive in our overall outlook, the data is still suggesting better buying opportunities may lay ahead over the near term.

On the charts, the major equity indexes closed mixed yesterday on positive NYSE and NASDAQ internals.

  • The S&P 500, NASDAQ Composite, and NASDAQ 100 closed lower as the rest posted gains, leaving all their near-term uptrends intact.
  • In fact, the RTY managed to violate its resistance level.
  • As well, cumulative market breadth is positive and above the 50 DMA for the All Exchange, NYSE, and NASDAQ.
  • The only caution signal is coming from the stochastic levels that are overbought on all. Yet, no bearish crossover signals have been generated thus far. 

On the data, the McClellan OB/OS Oscillators are still in overbought territory (All Exchange: +80.41 NYSE: +77.69 NASDAQ: +81.96). They continue to suggest the potential for a pause/consolidation of recent market gains, in our view.

  • The % of SPX issues trading above their 50 DMAs (contrarian indicator) remains neutral, lifting slightly to 73%.
  • The Open Insider Buy/Sell Ratio slipped to 40.2, also staying neutral.
  • We reiterate the detrended Rydex Ratio (contrarian indicator) should be noted as it has risen to a neutral -0.31. While not negative, we believe it suggests the leveraged ETF traders have done a significant amount of coverage of their prior extremely leveraged short exposure. As such, its contrarian and bullish influence has dissipated.
  • It is joined by this week’s AAII Bear/Bull Ratio (contrarian indicator) moderated further as the crowd became a bit less fearful at 1.38. Thus, it is now bullish versus its prior very bullish implications. 
  • The Investors Intelligence Bear/Bull Ratio (contrary indicator) also moderated, staying neutral with the number of bears dropping and bulls increasing at 30.1/41.1.
  • The forward 12-month consensus earnings estimate from Bloomberg for the SPX dipped to $233.65 from $234.13 as analysts continued cutting their forecasts. As such, the SPX forward multiple is 17.7 and at a slight premium to the rule of 20 ballpark fair value at 17.2.
  • The SPX forward earnings yield is 5.64%.
  • The 10-year Treasury yield closed lower at 2.77. We now support at 2.72% and resistance at 2.91%.

In conclusion, we continue to believe the resuscitation of the markets from the June lows is real and should be honored. However, the very near-term may offer better buying opportunities.

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