McClellan OB/OS Return T0 Neutral
All the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes dipped from the previous session. All closed at or near their intraday highs. Several of the charts saw technical improvements as noted below, with all but one back in near-term uptrends. The McClellan OB/OS Oscillators that suggested yesterday’s bounce have moved back to neutral from their prior oversold conditions. Sentiment indicators continue to imply the need for some rebuild of the “wall of worry” as discussed in yesterday’s comments. As such, our net takeaway is, given then state of the charts and the OB/OS, we are maintaining our near-term “neutral/positive” macro-outlook for equities.
On the charts, all the major equity indexes closed higher yesterday with positive internal on lighter trading volumes.
The charts improved as follows.
- The COMPQX (page 3), DJT (page 4), MID (page 4) and VALUA (page 5) closed above resistance. As well, the VALUA closed back above its near-term uptrend line while the RTY (page 5) closed above its downtrend line and is now neutral versus its prior negative trend.
- So, all but the RTY are back in near-term uptrends.
- Cumulative breadth saw some degree of improvement with the All Exchange and NYSE cumulative advance/decline lines turning neutral from negative and back above their 50 DMAs. On the other hand, the NASDAQ A/D remains negative and below its 50 DMA.
- The SPX, DJI and NDX registered bearish stochastic crossovers but remain in uptrends as noted above.
On the data, the McClellan 1-Day OB/OS oscillators that suggested yesterday’s bounce from oversold conditions have returned to neutral (All Exchange: -11.68 NYSE: +0.85 NASDAQ: -20.58).
- The sentiment indicators remain cautionary. The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders is in very bearish territory, dipping slightly to 1.61 as they remain heavily leveraged long.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) turned more bearish as well at 16.8/63.4 with the AAII a bearish 22.73/53.17. In general, bullish expectations have become excessive.
- The Open Insider Buy/Sell Ratio is still bearish but lifted to 25.5.
- The sentiment data continues to suggest the need of some rebuilding the “wall of worry”, in our opinion.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $183.54. This leaves the SPX forward multiple at 22.4 while the “rule of 20” finds fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield stands at 4.44%.
- The 10-year Treasury yield was unchanged at 1.56% and remains near what we see as support at 1.55%. We now view 1.63% as resistance.
For reasons stated above, we are maintaining our near-term “neutral/positive” macro-outlook for equities.
DJI: 33,545/NA
COMPQX: 13,668/13,982
NDX: 13,610/NA
DJT: 14,752/15,000
RTY: 2,175/2,225
VALUA: 9,176/9,318