Chart Remain Intact
Guy S. Ortmann, CMT | Jul 08, 2014 09:27AM ET
McClellan OB/OS Oscillators Mostly Neutral
Opinion: Yesterday’s declines in the major equity indexes leaves our short term outlook unchanged in regards to respecting the current near term uptrends which remain intact. Sentiment continues to be of some concern suggesting potential risk and the need for prudence regarding purchases. However, the charts have yet to give sell signals in spite of the extension of the rallies from the mid-May lows.
- On the charts, yesterday’s declines had little impact on the charts as only the RUT (page 4) violated its short term support level that has now been adjusted to 1,183. In spite of the support break, the RUT remains above its uptrend line from the mid-May lows as do the balance of the indexes. We agree the rally from last month’s lows is dramatic and eventually due for some consolidation. However, no viable sell signals have been triggered by the charts at this point. Thus, we believe the current trends should be honored until such signals are given.
- The data remains a mixed message. Yesterday’s minor declines had notable impact on the McClellan OB/OS Oscillators as all have reverted to neutral (NYSE:-28.74/+55.36 NASDAQ:+1.49/+33.8) from their prior overbought signals with the exception of the NYSE 21 day that is mildly overbought at +55.36.
- The sentiment data is the one area that continues to suggest prudence. Once again we see the pros measured by the OEX Put/Call Ratio (smart money) betting heavily on some weakness at a very bearish 2.84 while the “crowd” measuring the leveraged ETF traders via the detrended Rydex Ratio (contrary indicator) shows them to be excessively bullish at 1.53. The pros are nervous while the crowd believes they are climbing a ladder to heaven. Such extremes in sentiment suggest some prudence within an otherwise bullish scenario.
- In conclusion, the charts have yet to alter their bullish trends while sentiment suggests some prudence should be exercised within that framework, in our opinion.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.32 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.97 versus the 10 Year Treasury yield of 2.61%.
- SPX:1,950/???
- DJI:16,804/???
- NASDAQ:4,372/???
- DJT:8,149/???
- MID:1,425/???
- RUT:1,183/1,208
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