Saturday, March 25, 2023

Charts See Some Resistance Levels Violated


McClellan 1-Day OB/OS Oscillators Neutral

All the major equity indexes closed higher Tuesday with positive internals on the and as trading volumes rose on the NYSE but were flat on the NASDAQ. The charts saw some technical improvements although no formal changes in trend were registered while cumulative breadth improved as well. The data finds the 1-day McClellan OB/OS staying neutral despite the strength in yesterday’s session while the Rydex/Open Insider dynamic continues to move in an encouraging direction. So, despite the SPX appearing to be overvalued on a forward earnings basis, the improvement on the charts, breadth and psychology combined with neutral OB/OS levels suggest we move our near-term outlook to “neutral/positive” from “neutral”.

On the charts, all the indexes closed higher yesterday with positive internals and mixed volumes on the NYSE and NASDAQ as all closed at or near their intraday highs.

  • While no changes in trend were registered, other positive technical action was achieved.
  • Both the SPX (page 2) and DJT (page 4) closed above resistance while the DJT and VALUA closed back above their 50 DMAs.
  • As well, bullish stochastic crossover signals were generated on the SPX, DJI (page 2), and DJT. The COMPQX (page 3) and NDX (Page 3) are the only two indexes that have yet to generate such a signal.
  • Market breadth improved with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turning positive and back above their 50 DMAs.
  • Regarding near-term trend, The MID, RTY and VALUA remain neutral with the rest negative.

The data remains generally neutral.

  • The 1-day McClellan OB/OS Oscillators are neutral despite yesterday’s strength (All Exchange: +8.59 NYSE: +12.28 NASDAQ: +4.97).
  • The Open Insider Buy/Sell Ratio (page 9) rose yet again to 67.5. While still neutral, insiders continue to increase their buying versus selling activity as has been the case over the past several sessions. The Rydex Ratio, (contrarian indicator) dipped a bit to a neutral 0.59 as the leveraged ETF traders continued to lighten up on their leveraged long exposure. We view this dynamic between the insiders and ETF traders as a positive.
  • This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remains little changed and bearish at 20.2/60.6.
  • The valuation gap has slipped back to overvalued levels with the SPX forward multiple rising to 21.2 with consensus forward 12-month earnings estimates from Bloomberg lifting to $157.51 while the “rule of 20” finds fair value at 19.1. We would note said forward estimates have been moving north over the past few months rather consistently.
  • The SPX forward earnings yield is 4.68% with the rising to 0.88%.

In conclusion, for the reasons stated above, we are changing our near-term outlook for the equity markets from “neutral” to “neutral/positive”.

SPX: 3,304/3,421 DJI: 26,290//27,500 COMPQX: HVS10,759/11,346

NDX: 10,981//11,495 DJT: 11,080/11,624 MID: 1,910/HVR1,971

RTY: 1580/1,650 VALUA: 6,372/6,594

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