McClellan 1-Day OB/OS Neutral As Market Breadth Weakens
All the major equity indexes closed lower Wednesday post the release of the Fed’s comments. Internals were broadly negative on the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes dipped from the prior session.
All closed at or near their intraday lows with several violations of support, near-term uptrend lines and 50 DMAs. We would keep a close eye on the COMPQX chart that is close to its long-term uptrend line around the 15,000 level that dates back to November of 2020.
Thus, the near-term index trends are either neutral or negative. Cumulative market breadth suffered as well.
Meanwhile, the data finds the 1-day McClellan OB/OS Oscillators not yet oversold and neutral while some other data points saw minor improvements. We have not been sellers, but the OB/OS suggests it may be a bit early to be on the buy side
On the charts, the indexes closed lower yesterday with very negative internals on the NYSE and NASDAQ. All closed near their lows of the day as selling persisted through the close.
- Only the SPX did not register technical damage as it closed at support.
- On the other hand, the COMPQX, NDX, RTY, and VALUA closed below support.
- Near-term uptrend lines were violated on the DJI, DJT, MID, RTY, and VALUA.
- The 50 DMAs were violated on the COMPQX, NDX, MID, RTY, and VALUA.
- As such, no near-term uptrends exist with the COMPQX, NDX, and RTY negative and the rest neutral.
- Cumulative market breadth weakened as well with All Exchange ad NASDAQ A/Ds turning negative and the NYSE’s dropping to neutral with all below their 50 DMAs.
- The COMPQX generated a bearish stochastic crossover signal.
The data finds the McClellan 1-Day OB/OS Oscillators not yet oversold but neutral (All Exchange: -0.54 NYSE: +9.18 NASDAQ: -9.21). They suggest potential further weakness.
- The % of SPX issues trading above their 50 DMAs dropped to 66% and remains neutral but no longer near the upper end of its range for last year.
- The Open Insider Buy/Sell Ratio rose to 41.3 and remains neutral.
- Meanwhile, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 0.95, turning neutral from bearish.
- This week’s contrarian AAII Bear/Bull Ratio dropped to 1.12 but remained bullish as the crowd remains skeptical of the recent rally.
- The Investors Intelligence Bear/Bull Ratio (24.4/55.0) (contrary indicator) was unchanged and remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting slightly to $222.08 for the SPX. As such, the SPX forward multiple is 21.2 with the rule of "20" finding ballpark fair value at 18.3.
- The SPX forward earnings yield is 4.72%.
- The 10-year Treasury yield rose to 1.71% and above resistance. We now view support for the 10-Year at 1.55% with resistance at 1.75%.
In conclusion, we remain “neutral/positive” in our near-term macro-outlook for equities as more aggressive Fed policy may have been largely baked into the cake yesterday, in our opinion. While not sellers, the OB/OS implies potential for more weakness and a bit too early to buy.
SPX: 4,694/4,800 DJI: 36,300/NA COMPQX: 15,000/15,510 NDX: 15,740/16,033
DJT: 16,213/16,765 MID: 2,777/2,866 RTY: 2,180/2,200 VALUA: 9,837/9,985