Stochastics OverboughtOpinion
Yesterday’s gains for the major equity indexes pushed the data to levels suggesting a stall and potential giveback of the recent bounce from the correction lows. Given the current conditions, we still think it advisable not to chase price at current levels and await a more opportune buying level.
- Our expectation of a stall of the indexes did not come to fruition yesterday. However, due to the advance, we now find the McClellan one-day OB/OS Oscillators in overbought territory for the NYSE (+62.76) and NASDAQ (+68.71) suggesting the markets are a bit overextended. The 21-day levels remain neutral at +3.78 and +35.29 respectively.
- The Equity Put/Call Ratio (contrary indicator) is now heavy calls at .54 implying too much bullishness from the “crowd” while the Gambill Insider Buy/Sell Ratio shows a lack of insider buying interest at a low 9% as of 7/8. The stochastics for the indexes have become extended as well with all of them in overbought territory and some in the high 90s. So the data, in our opinion, is starting to show a gathering of clouds regarding the near term outlook.
- On the charts, all of the short term resistance levels were surpassed on the close yesterday for the major indexes and have been adjusted below. This is obviously bullish action. However, given the magnitude of the advance from the 6/24 lows, some retracement of the gains would be a very normal process. We would also note the NASDAQ and DJT charts (page 3) have now moved up to return lines that have proven to be generally problematic for further advances over the past several months.
- In conclusion, we remain of the opinion that the expected bounce from the recent market correction lows has largely played itself out for the near term suggesting some patience is warranted regarding purchases.
- For the longer term, we remain bullish on equities as they remain undervalued with a 7.2% forward earnings yield versus the 10-Year Treasury yield of 2.63%.
- SPX: 1,570/1,655
- DJI: 14,550/15,333
- NASDAQ: 3,267/?
- DJT: 6,118/6,475
- MID:1,137/1,210