McClellan 1-Day OB/OS Oscillators Remain Neutral
All the major equity indexes closed lower Friday, with negative internals on the NYSE and NASDAQ. At the close, several of the index charts saw their near-term uptrend lines violated, while also generating bearish stochastic crossover signals as cumulative market breadth weakened slightly. The data, however, still finds the McClellan OB/OS Oscillators in neutral territory, while the psychology data continues to suggest an excess of bullish sentiment as forward 12-month earnings estimates for the SPX continue to rise. As such, the mix of the charts, data and forward SPX earnings estimates suggest we continue to keep our “neutral/positive” near-term macro-equity outlook in place currently.
On the charts, all the major equity indexes closed lower Friday with negative internals on the NYSE and NASDAQ. The close found the SPX, COMPQX, NDX, MID and RTY below their near-term uptrend lines and on bearish stochastic crossover signals. However, no support levels were violated. So, now only the Dow Jones Transportation and VALUA are in uptrends with the rest neutral. Market breadth slipped slightly, turning the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ neutral from their prior positive trends. Also, the NASDAQ A/D closed below its 50 DMA.
On the data, the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -10.25 NYSE: -15.12 NASDAQ: -6.44). Sentiment indicators, however, remain cautionary. The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders is still in very bearish territory at 1.56.
Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) stayed bearish and unchanged at 16.8/63.4. The AAII, however, turned more bearish at 21.83/55.47. History suggests bullish expectations have become excessive that may cause an issue for the markets going forward. The Open Insider Buy/Sell Ratio, however, remains in neutral territory lifting to 27.9 as insiders slightly increased their buying activity. Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $187.16 from our last reading of $184.20. This leaves the SPX forward multiple dipping to 22.3 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 4.5%. The 10-year Treasury yield closed at 1.63% and at what we see as resistance. We view 1.55% as support.
In conclusion, the shift in the chart trends and cumulative breadth are not quite sufficient to alter our current near-term “neutral/positive” macro-outlook for equities as the rest of the data dashboard is little changed.
DJI: 33,700/34,133
COMPQX: 13,900/NA
NDX: 13,755/13,990
DJT: 14,920/NA
RTY: 2,250/2,300
VALUA: 9,293/NA