McClellan OB/OS Mostly Neutral
Opinion
All of the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as volumes declined from Friday’s levels. The charts saw a couple of minor improvements with one index closing above near term resistance. The data has turned mostly neutral including the McClellan OB/OS Oscillators. As such, we remain of the opinion that valuation continues to be extended, margin debt is at extremes while investment advisors remain complacent in spite of last week’s shake up. Risk remains high versus potential reward, in our view.
- On the charts, all of the indexes closed higher yesterday with positive internals. However, volumes declined from Friday’s session resulting in the dynamic of a heavy volume selloff followed by a light volume bounce. Both the SPX (page 2) and COMPQX (page 3) closed back above their 50 DMAs, joining the DJI (page 2). As speculated yesterday, the oversold conditions brought the SPX and DJI to their respective resistance levels. The issue now is whether they can violate said resistance. The DJT (page 3) managed to close above resistance but had been the first of the indexes to roll over. Its trend is now neutral. As such, we continue to see a bifurcation in the indexes as the large caps manage to keep their heads above water while the mid and small caps continue to weaken. Only the DJI is in a short term uptrend. The SPX and DJT are neutral with the balance still in near term downtrends.
- The data has turned more neutral from its recent positive implications. The deeply oversold McClellan 1 day OB/OS Oscillators that fueled the bounce have moderated notably. Only the NYSE 1 day is mildly oversold at -53.34. The All Exchange and NASDAQ 1 day levels are now neutral at -41.8 and 30.53 respectively. All of the 21 day levels are neutral. The Total and Equity Put/Call Ratios are neutral at 0.85 and 0.59 while the OEX Put/Call Ratio remains bearish art 1.53 as the pros remain weighted in puts. Investment advisors were unfazed by the drop last week as the new Investors Intelligence Bear/Bull Ratio still finds a dearth of bears at 17.0/57.5. In our opinion, the data fuel for the bounce has been largely spent.
- In conclusion,. valuation remains high as does margin exposure and advisor complacency given their current readings. We continue to view market risk as high versus potential reward.