Charts Little Changed On Weakness

1-Day McClellan OB/OS Neutral

All of the indexes closed lower Friday with negative internals on heavy options expiration trading volumes on the NYSE and NASDAQ. There was little change on the charts with only one violating its short term uptrend line. The data that was suggesting a pause in the rally Friday morning has returned to a more neutral forecast, including all of the 1 day McClellan OB/OS Oscillators. Thus we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

On the charts, all of the indexes closed lower Friday with negative internals on heavy options expiration trading volume.

• Most closed at or near their intraday lows.
• Only two technical events of note were generated with the RTY (page 5) closing below its short term turned line that moves said trend to neutral while the VALUA (page 5) closed below its 50 DMA.
• All of the near term trends remain positive except the RTY’s neutral stance.
• The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive.
• We would note the COMPQX (page 3), DJT (page 4), MID (page 4) and VALUA are at high “volume at price” (VAP) levels that may require further work before further notable progress may be achieved.

The data that was suggesting a pause Friday morning has turned neutral, including 1he 1 day McClellan OB/OS Oscillators (All Exchange:+43.24 NYSE:+46.38 NASDAQ:+39.4).

• The Open Insider Buy/Sell Ratio (79.9), % of SPX stocks above their 50 DMAs (66.5) and detrended Rydex Ratio (contrary indicator) at –0.31 are also neutral.
• Last week’s AAII Bear/Bull Ratio (contrary indicator) found bearish sentiment persisting at 38.67/24.0. We view this lack of enthusiasm on the part of the crowd as a positive.
• The 12 month forward consensus earnings estimate from Bloomberg for the SPX stands at $170.46, leaving the forward p/e at a 17.3 multiple while the “rule of twenty” finds fair value at 17.9 suggesting the SPX is nearing fair valuation. This is based on the assumption that said estimates will hold. The 10 Year Treasury yield is 2.07%. The earnings yield stands at 5.78%.

In conclusion, given the state of the charts and data as a rest of Friday’s market pause, we are maintaining our near term “neutral/positive” outlook for the major equity indexes at this time.

• SPX: 2,887/NA
• DJI: 26,019/26,801
• Nasdaq: 7,849/8,049
• NDX: 7,533/7,788
• DJT: 10,280/10,485
• MID: 1,893/1,948
• Russell: 1,533/1,573
• VALUA: 6,068/6,228

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Written By: Guy S. Ortmann, CMT