McClellan OB/OS Oscillators Remain Oversold
Opinion: All of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session. No resistance levels or downtrends were violated, however. The data is generally encouraging with one exception. As such, we are of the opinion that the “hammer formations” discussed in yesterday’s comments suggest the lows of the correction may have been put in place. Yet, going forward, recovery may be sporadic as high volume resistance levels will need to be overcome as well as current short term downtrends. Thus we are altering our outlook for the major equity indexes from negative to neutral.
- On the charts, all of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session. However, no resistance levels or near term downtrend lines were violated. We continue to believe the “hammer formations” noted in yesterday’s comments suggest the indexes may well have put in their lows although that is not to say said lows could be tested. We would also note 50% and 61.8% Fibonacci retracements of the gains from March 2017 were achieved on all of the indexes during the correction while the % of SPX stocks trading above their 50 DMs sank to 17%, a level associated with bottoms. There was some improvement in breadth as the cumulative advance/decline lines for the VALUA and NYSE turned neutral form negative. The NASDAQ A/D remains negative. However, recovery may be sporadic as there will be several levels of volume resistance to be overcome going forward. Again, there is nothing to say the lows cannot be tested.
- The data finds all of the McClellan OB/OS Oscillators remain oversold (All Exchange:-58.71/-63.85 NYSE:-59.75/-66.18 NASDAQ:-58.16/-58.19). Insider buying has picked up moving the OpenInsider Buy/Sell Ratio to 52.3 but still neutral. Sentiment via the AAII Bear/Bull Ratio (contrary indicator) improved to neutral from negative as bulls shrank while bears increased to 29.0/42.0. The OEX Put/Call Ratio is the one negative outlier as the pros are long puts at 1.72.
- In conclusion, we believe there is enough evidence coming from the charts and data to alter our opinion from negative to neutral. However, the markets may likely experience fits and starts in their attempt to progress higher over the near term.
- Forward 12 month earnings estimates for the SPX from Bloomberg are $157.33, leaving a 5.9 forward earnings yield on a 16.9 forward multiple.