Most Charts Continue Improvements
Guy S. Ortmann, CMT | Aug 27, 2014 10:25AM ET
1 Day McClellan OB/OS Oscillators Overbought
Opinion: The markets, in general, have continued to advance in spite of our concerns regarding market breadth expressed over the past several sessions. In fact, most of the internal issues have now been resolved. As such, the short term uptrends of the major indexes should be respected until proven otherwise. Yet we would note the 1 day McClellan OB/OS Oscillators are overbought while the forward P/E for the SPX has become stretched to the point where some pause or possible weakness may be expected.
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- On the charts, internals have improved as the NASDAQ A/D has joined the NYSE A/D in closing above its 50 DMA. It has now also put in a higher low and higher high post the recent correction. The ValueLine Arithmetic has also closed back above its 50 DMA. The SPX (page 2) made another new all-time closing high yesterday while the MID and RUT (page 4) closed above their short term resistance levels. The COMPQX also advanced to a new 14 year closing high. The only failures came from the DJI (page 2) and DJT (page 3) being unable to close above their short term resistance levels. So, in spite of our prior concerns, the charts are intact.
- The data remains a mixed bag. The McClellan 1 day OB/OS Oscillators are overbought on the NYSE (+66.86) and NASDAQ (+63.58). The 21 day levels are neutral (+43.71/+30.18). The Rydex Ratio (contrary indicator) is a cautionary 55.7 along with negative signals coming from the WST Ratio and its Composite at 71.0 and 157.3. The Equity Put/Call Ratio (contrary indicator) is also bearish at 0.53. Yet the OEX Put/Call Ratio (smart money) shows the pros as bullish at 0.52. We would also note the P/E on the forward 12 month earnings estimates for the SPX is stretched to a decade high of 15.7 and at peak levels for that time frame.
- In conclusion, our concerns about market internals appear to have been for naught as the markets have continued to improve. Yet, while the charts are intact, the combination of OB/OS levels and market valuation imply a pause in the current advance, if not some near term weakness.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.37% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.44 versus the 10 Year Treasury yield of 2.39%.
- SPX: 1,975/???
- DJI: 16,980/17,140
- NASDAQ: 4,450/???
- DJT: 8,294/8,457
- MID: 1,420/1,444
- RUT: 1,160/1,180
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Most Charts Continue Improvements
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