1-Day McClellan OB/OS Moderate
All of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ as NYSE volumes rose from the prior session while NASDAQ volumes dipped. Three of the index charts closed below their short term uptrend lines while the data has moderated in some cases as others remain positive. Given the fact that the DJI has bounced over 2,000 points from its recent intraday low, we had been expecting some pause/retracement of recent gains. That remains to be the case. However, out near term outlook based on the charts and data remains “neutral/positive”.
- On the charts, all of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ. However, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive but below their 50 DMAs. The COMPQX (page 3), RTY (page 5) and VALUA (page 5) closed below their short term uptrend lines, turning their trends to neutral from positive. The rest of the indexes near term trends remain positive.
- The data has moderated for the McClellan OB/OS Oscillators that were overbought and suggesting some retracement as previously discussed. However, we now find only the NYSE 1 day mildly overbought as the balance have moved into neutral territory (All Exchange:+44.74/+1.36 NYSE:+54.34/+17.08 NASDAQ:+36.81/-10.99) while the Put/Call Ratios are a mix of bullish and neutral readings. The detrended Rydex Ratio (contrary indicator) still finds the leveraged ETF traders remaining heavily leveraged short at -1.67. Seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation, assuming current estimates hold, is below fair value with the forward 12-month earnings estimates for the SPX via Bloomberg of $171.73, leaving the forward 12-month p/e for the SPX at 16.2 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.18%.
- In conclusion, Friday’s weakness was not to be unexpected given the sizable recent rally off of the lows that moved the OB/OS Oscillators into overbought conditions. As discussed, those signals have now moderated while contrarian indicators remain bullish. So while some further consolidation may be expected, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.
- SPX: 2,755/2,817
- DJI: 25,530/26,398
- Nasdaq: 7,334/7,639
- NDX: 7,016/7,275
- DJT: 10,380/10,746
- MID: 1,869/1,917
- Russell: 1,529/1,618
- VALUA: 6,081/6,243