1-Day McClellan OB/OS Still Overbought
The bulk of the indexes closed lower Thursday with the one exception of the DJI. Internals were negative on the NYSE and NASDAQ as volumes declined form those of the prior session. No technical events of import were generated on the charts while the data suggests the potential of a pause/retracement of some of the recent gains. Yet with said pause expected, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.
- On the charts, the DJI (page 2) closed higher yesterday as the rest posted losses with negative internals but on lighter trading volume. No trends or support/resistance levels were violated as all remain in short term uptrends. However, all of the stochastic levels are overbought. That does not necessarily mean prices are headed notably lower. However, they do suggest the “sweet spot” for recent buying may have passed. All of the cumulative advance/decline lines remain positive but below their 50 DMAs.
- The data is mixed. All of the 1-day McClellan OB/OS Oscillators remain overbought, presenting a short term headwind, with the 21-day readings neutral (All Exchange:+83.75/-1.08 NYSE:+90.26/+10.37 NASDAQ:+79.77/-9.82). Both the % of SPX stocks trading above their 50 DMAs (49.0%) and Open Insider Buy/Sell Ratio (79.8) are neutral. On the positive side, the detrended Rydex Ratio (contrary indicator) still finds the leveraged ETF traders heavily leveraged short at -1.81. In our opinion, the 1 day McClellan OB/OS levels may have the greater near term influence. Seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation, assuming current estimates hold, is approaching fair value with the forward 12-month earnings estimates for the SPX via Bloomberg of $171.61, leaving the forward 12-month p/e for the SPX at 16.4 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.1%.
- In conclusion, While we are maintaining our near term “neutral/positive” outlook for the major equity indexes, the 1-day McClellan OB/OS levels and stochastic readings imply some pause or partial retracement of the recent rally gains may be experienced.
- SPX: 2,739/2,817
- DJI: 25,471/26,398
- Nasdaq: 7,334/7,639
- NDX: 7,016/7,275
- DJT: 10,380/10,746
- MID: 1,869/1,917
- Russell: 1,529/1,618
- VALUA: 6,081/6,243
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