More New Closing Highs Achieved

 | Nov 04, 2019 10:35AM ET

McClellan OB/OS Oscillators Remain Neutral

All of the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as trading volumes rose on the NYSE and declined on the NASDAQ from their prior session. Multiple new closing highs were achieved on the charts while other indexes also saw some positive technical events. The data remains generally neutral while forward 12-month earnings estimates for the SPX saw an uptick. The net result is our “neutral” near term outlook has watched the indexes march higher. Yet low VIX levels and overbought stochastic readings suggest some potential for a reemergence of volatility and retracement should some negative news hit the tape. As such, our near term outlook remains “neutral” at this time.

On the charts, all of the indexes closed higher Friday with positive internals while overall trading volumes were mixed. Several achievements were made on the charts as a result.

  • The SPX (page 2), COMPQX (page 3) and NDX (page 3) made new closing highs while the DJI (page 2), DJT (page 4) and VALUA (page 5) closed above resistance.

  • The VALUA also closed back above its near term uptrend line as did the MID (page 4) and RTY (page 5).

  • So now all of the indexes are in near term uptrends with the exception of the DJT staying neutral.

  • The cumulative advance/decline lines for the All Exchange and NASDAQ remain neutral, however, while the NYSE A/D turned positive.

  • Yet the VIX is near its lowest levels of the year that were followed by market corrections as the stochastic levels remain overbought as well. In our opinion, they suggest some tempering of enthusiasm due to the implication of potential for volatility returning to the markets.

    • The data remains mostly neutral including all of the 1-day McClellan OB/OS Oscillators (All Exchange:+18.14 NYSE:+25.57 NASDAQ:-19.52).

  • The detrended Rydex Ratio (contrary indicator) remains neutral at +0.48.

  • Last week’s AAII Bear/Bull Ratio (contrary indicators) remained bullish at 34.33/29.33.

  • However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) stayed bearish at 17.2/47.6 suggesting an excess of bullish sentiment on the part of investment advisors continues.

  • The % of SPX stocks trading above their 50 DMAs is a neutral 65.9% as is insider buying at a 40.6 Open Insider Buy/Sell Ratio.

  • Valuation is nearing fair value with forward 12 month earnings estimates for the SPX ticking up to $172.57 via Bloomberg, leaving the forward p/e at a 17.8 multiple while the “rule of twenty” finds fair value at 18.3.

  • The 10-Year Treasury yield stands at 1.73%.
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  • The earnings yield is 5.63%.

    • In conclusion, while we would normally be more constructive in our outlook, the VIX, stochastic levels and valuation suggest some degree of caution may be appropriate, thus causing us to maintain our near term “neutral” outlook.

  • SPX: 2,994/NA

  • DJI: 27,009/27,365

  • Nasdaq: 8,173/8,330

  • NDX: 7,967/NA

  • DJT: 10,421/10,763

  • MID: 1,939/1,983

  • Russell: 1,548/1,589

  • VALUA: 6,215/6,365

    • Guy S. Ortmann, CMT Written By: Guy S. Ortmann, CMT

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