More Resistance Levels Violated

McClellan OB/OS Oscillators Remain Overbought

Our headline remains the same as yesterday’s. All of the indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. The charts saw four of the indexes violate their near term resistance levels leaving all of the near term uptrends intact. The data is still sending a bit of a mixed message as discussed below. Yet in spite of the data waving a few yellow flags suggesting potential for some pause/retracement of the recent and significant rally, we are maintaining our near term “positive” outlook for the major equity indexes as no caution signals from the charts have appeared at this point.

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• On the charts, all of the indexes closed higher yesterday with positive internals. More progress was seen on the SPX (page 2), DJI (page 2), NDX (page 3) and VALUA (page 5) as all closed above their near term resistance levels seen adjusted below. All of the near term uptrends remain intact as do those on the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. All are above their 50 DMAs as well. The stochastic readings remain overbought and are being watched closely but have yet to generate “bearish crossover” signals.

• The data remains a mix of neutral and cautionary signals. The McClellan OB/OS Oscillators remain overbought (All Exchange:+98.38/+122.55 NYSE:+111.42/+151.54 NASDAQ:+89.38/+99.98). While they can stay elevated for extended periods, in our view they imply fairly weak shock absorbers should negative news hit the tape. Also, the % of SPX stocks trading above their 50 DMAs has risen from 10% to 85.5% in the past month (page 9). The last time the current reading was achieved was in January of 2018, as noted on the chart, that was followed by a few months of choppiness in the markets. However, valuation still seems to be appealing as it remains below fair value, with the forward 12 month earnings estimates for the SPX via Bloomberg at $168.41, leaving the forward 12 month p/e for the SPX at 16.3 versus the “rule of 20” implied fair value of a 17.3 multiple. The “earnings yield” stands at 6.15%.

In conclusion, the charts have yet to flash any notable cautionary signals, thus suggesting we maintain our near term “positive” outlook for the indexes. However, some of the data has increased its intensity suggestive of the potential for some pause/retracement of January’s gains should some negative news hit the tape.

• SPX: 2,670/2,761
• DJI: 24,732/25,517
• Nasdaq: 7,166/7423
• NDX: 6,776/7,110
• DJT: 9,836/10,250
• MID: 1,806/1,867
• Russell: 1,462/1,532
• VALUA: 5,905/6,129

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More Resistance Levels Violated

Written By: Guy S. Ortmann, CMT