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Near Term Outlook Remains “Neutral”

ByGuy S. Ortmann, CMT
Published 09/16/2019, 09:37 AM
Updated 07/09/2023, 06:31 AM

McClellan 1 Day OB/OS Oscillators Remain Overbought

The indexes close mixed Friday with mixed internals on the NYSE and positive internals for the NASDAQ as trading volumes declined on both exchanges from the prior session. No technical events of import were generated on the charts that remain positive. Yet, as we have discussed recently, the data and valuation are counterbalancing the charts, thus leading us to maintain our near term “neutral” outlook for the major equity indexes.

On the charts, the indexes closed mixed Friday without generating any notable technical events worthy of comment.

  • The SPX (page 2), COMPQX (page 3) and NDX (page 3) declined as the rest advanced modestly.

  • The NYSE had positive up/down volume but negative breadth as the NASDAQ saw both metrics positive.

  • All occurred on lighter trading volume.

    • As such, all of the indexes charts remain in short term uptrends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. High “volume at price” (VAP) levels remain supportive in our view.

  • However, as noted recently, all of the stochastic readings are well into overbought territory, suggesting some near term risk potential exists. Should they generate “bearish crossover signals”, risk potential would likely increase.

    • The data remains mixed.

  • All of the 1 day McClellan OB/OS Oscillators remain overbought (All Exchange:+67.91 NYSE:+51.51 NASDAQ:+87.53). Like the stochastic readings, they imply an increase in retracement potential.

  • The detrended Rydex Ratio (contrary indicator) is neutral at +0.07 as is the % of SPX stocks trading above their 50 DMAs at 67.9.
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  • Last Tuesday’s AAII Bear/Bull Ratio (contrary indicators) remained bullish at 40.0/26.67. The Investor’s Intelligence Bear/Bull Ratio (contrary indicator) shifted from bearish to neutral at 18.7/44.9 .

  • The Open Insider Buy/Sell Ratio remains neutral at 36.5 but has been declining over the past week.

  • The appearance of valuation looking appealing, assuming current estimates hold, continues to compress with the 12 month forward consensus earnings estimate from Bloomberg for the SPX dipping today to $171.45, leaving the forward p/e at a 17.5 multiple while the “rule of twenty” finds fair value at 18.1. We would note said earnings estimates have been declining over the past two weeks from $172.25 as the markets have moved higher.

    • The 10 year Treasury yield rose to 1.9%.

  • The earnings yield stands at 5.7%.

    • In conclusion, Friday’s action did nothing to warrant a change in our near term ”neutral” outlook for the major equity indexes as the weight of the evidence from the charts, data and valuation remains somewhat evenly balanced.

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