US equities: Buy pullbacks

Tactical indicators continue to support using short-term pullbacks in US equities as buying opportunities, according to Andrew Burkly, Portfolio Strategist at Oppenheimer.

Burkly and his team use an Equity Risk Model made up of 10 indicators, comprising a mix of technical, fundamental and sentiment data (see Table). None of the model’s 10 component indicators changed signal during June – a relatively rare event. However, Burkly says that one indicator that is likely to change signal is the Dynamic RSI indicator, which measures overbought/oversold conditions in the S&P 500 using weekly price data. While it was just above the oversold threshold on the last Friday in June, subsequent movements in the S&P 500 indicate that it will have reached oversold conditions in early July.

In addition to the Dynamic RSI, Burkly says two other indicators are approaching their thresholds for a bullish signal: Participation Divergence and ISM Composite. Participation Divergence is currently neutral but has been moving away from the earlier signs of overbought internals toward potentially oversold conditions, while the ISM Composite indicator is currently bearish but likely to move back to bullish readings next month. None of the currently bullish indicators are as close to a change in signal.

Overall, the model does not argue for a bearish stance at this point. Rather, Burkly says these indicators suggest the recent pullback is likely to again be followed by a rebound.

See Table