Multiple New Closing Highs Achieved

McClellan 1-Day OB/OS Oscillators Remain Neutral

All the major equity indexes closed higher Friday with mixed internals on the NYSE while the NASDAQ’s were slightly positive. Overall trading volumes rose on both exchanges from the prior session. The charts saw a number of positive technical events registered including several new closing highs with another shifting trend to neutral from negative. All closed at or near their intraday highs.

Meanwhile, the data, except for sentiment, remains a bit mixed. However, the McClellan OB/OS Oscillators remain in neutral territory after their overbought and cautionary signal at the beginning of last week. At this stage, they are not yet suggesting a notable headwind, in our opinion. For now, we are keeping our near-term “neutral” macro-outlook for equities in place as we look for a more opportune moment to become more enthusiastic.

On the charts, all the major equity indexes closed higher Friday and near their intraday highs with generally positive internals.

• The charts saw several positive technical events registered with the SPX, DJI, COMPQX and NDX all closing above their respective resistance levels to new closing highs.
• As well, the DJT finally managed to close above its near-term downtrend line and is now neutral versus its prior negative trend.
• As such, the near-term trends are positive on the SPX, DJI, COMQPQX and NDX.
• The DJT, MID and VALUA are neutral with only the RTY remaining in a downtrend.
• Cumulative market breadth is unchanged and neutral on the All Exchange, NYSE and NASDAQ.
• Several of the stochastic levels are now overbought but have not yet generated bearish crossover signals.

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The data finds all the McClellan 1-Day OB/OS all neutral and have yet to flash yellow warning lights (All Exchange: -24.61 NYSE: -26.82 NASDAQ: -21.07).

• The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains bearish at 1.16 as they remain leveraged long.
• Last week’s contrarian AAII bear/bull ratio (24.5/41.67) remained in mildly bearish territory while the Investors Intelligence Bear/Bull Ratio (contrary indicator) continued to suggest an excess of bullish expectations on the part of investment advisors at a bearish 15.3/61.2.
• The Open Insider Buy/Sell Ratio is unchanged at a neutral 32.4.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $200.72 for the SPX. As such, the SPX forward multiple is 22.0 with the “rule of 20” finding fair value at approximately 18.7.
• The SPX forward earnings yield is 4.55%.
• The 10-year Treasury yield closed at 1.29% and near 1.3% resistance. We view support to be 1.13%. We are monitoring the yield for a possible violation of said resistance.

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In conclusion, several of the charts improved on Friday while the OB/OS levels remain non-threatening. Nonetheless, we are staying “neutral” in our near-term macro-outlook for equities as, in our opinion, some consolidation of recent gains may prove more opportune.

SPX: 4,350/NA DJI: 34,580/NA COMPQX: 14,544/NA NDX: 14,800/NA

DJT: 14,535/14,905 MID: 2,628/2,691 RTY: 2,120/2,225 VALUA: 9,145/9,550

Written By: Guy S. Ortmann, CMT