Nasdaq, S&P 500 Stochastics Are Overbought, but There Are No Bearish Crossovers

 | Sep 06, 2017 | 10:00 AM EDT
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For the S&P 500 and for the Nasdaq, as well as for the mid-cap index, the stochastic levels are overbought. But so far, there have not been any bearish crossover signals to worry about.

All of the indexes closed lower on Tuesday, with negative internals on the NYSE and Nasdaq as volumes rose on both exchanges from the prior session. No support levels were broken on the charts, but some 50-day moving averages were violated.

The data are mixed, resulting in a generally neutral near-term projection. While we remain concerned regarding margin debt levels, high valuation and advisor complacency, we are of the opinion that the mixed near-term trends of the indexes should be respected until proven otherwise.

On the charts, all of the indexes closed lower yesterday, with negative internals on higher volume. No support levels were violated, but the RTY and VALUA closed back below their 50-day moving averages. As such, the short-term trends remain positive on the COMPQX and RTY, while the rest are neutral.

The stochastic levels on the SPX, COMPQX and MID remain overbought, but have not flashed bearish crossover signals at this point in time. The cumulative advance/decline lines remain in positive near-term trends but the NASDAQ's A/D is now below its 50-day moving average.

Tuesday's selloff pulled the prior one-day McClellan OB/OS Oscillator overbought readings back into neutral territory, joining the 21-day levels (All Exchange:+34.79/-3.18 NYSE:+28.0/+0.86 NASDAQ:+41.05/-6.58). Both the Open Insider Buy/Sell Ratio (44.4) and Equity Put/Call Ratio (0.67) are neutral as well.

The OEX and Total Put/Call Ratios are counterbalancing at 2.47 and 1.17 respectively, while the AAII Bear/Bull Ratio (contrary indicator) has turned mildly bullish as the crowd now finds bears outnumbering bulls 36.33/29.0. In contrast, the Investors Intelligence Bear/Bull Ratio (contrary indicator) still finds advisors complacent at 19.1/49.5.

In conclusion, our core concerns of high margin debt (up 19.5% y/y), historically high valuation and advisor complacency persist. However, for the near term, we believe the mix of neutral to positive near term trends should be honored until proven otherwise.

Forward 12 month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56% forward earnings yield on a 17.9 forward multiple, near a decade high.

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