Saturday, June 3, 2023

Cumulative Market Breadth Improves |


McClellan 1-Day OB/OS Turn Neutral From Oversold

All the major equity indexes closed higher Friday with positive internals on the and as trading volumes declined from the prior session on both exchanges. The charts saw multiple positive technical events generated while overall market breadth improved as well. Meanwhile, the data finds the McClellan 1-Day OB/OS Oscillators back to neutral from their previous oversold condition that suggested a possible pause/bounce as discussed in Friday’s note. The bulk of the data remains neutral except for the psychology levels that remain cautionary. As such, we are maintaining our “neutral/positive” macro-outlook for equities until enough evidence appears to suggest otherwise.

On the charts, all the indexes closed higher Friday with positive internals on the NYSE and NASDAQ on lower treading volume.

  • All but one of the charts saw some form of technical improvement as follows.
  • The (page 2), (page 2), COMPQX (page 3) and (page 3) all posted new closing highs as the SPX and DJI closed above their near-term resistance levels.
  • The MID (page 4), RTY (page 5) and VALUA (page 5) also closed above their near-term downtrend lines and turned neutral from negative.
  • As well, the MID and VALUA closed above resistance while the VALUA also moved back above its 50 DMA.
  • The (page 4) had a good session but was unable to violate either its downtrend line or resistance level.
  • Market breadth also saw improvement with the cumulative advance/decline lines for the All Exchange and NASDAQ turning neural from negative and back above their 50 DMAs while the NYSE A/D remains neutral as well.
  • No stochastic signals of import were generated

The data finds all the McClellan 1-Day OB/OS that suggested a pause/bounce Friday morning have returned to neutral and, in our opinion, are not threatening at this stage (All Exchange: -26.58 NYSE: -21.87 NASDAQ: -29.84).

  • The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders declined but remains bearish at 1.29.
  • Last week’s contrarian AAII bear/bull ratio (23.9/43.37) turned neutral from mildly bearish while the Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remained bearish at 16.2/59.6.
  • The Open Insider Buy/Sell Ratio dropped to 27.8 as insiders downshifted their buying activity and remains neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $199.08 for the SPX. As a result, the SPX forward multiple is 22.0 with the “rule of 20” finding fair value at approximately18.6. The SPX forward earnings yield is 4.56%.
  • The Treasury yield closed higher at 1.36. We view support as 1.2% and resistance at 1.44%. The 10-year yield remains in a downtrend from its March peak that we view as a positive for equities regarding the valuation gap.

In conclusion, we remain near-term “neutral/positive” in our macro-outlook for equities at this time.

SPX: 4,295/NA

DJI: 34,300/NA

COMPQX: 14,356/NA

NDX: 14,485/NA

DJT: 14,247/14,905

MID: 2,668/2,710

RTY: 2,180/2,225

VALUA: 9,461/9,672

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