Insider Active Buying Continues
All of the indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes dipped from the prior session. All closed near their highs of the day. However, no technical events of import were generated on the charts regarding trend or resistance. The data has turned a bit more mixed but generally encouraging. Nonetheless, a few points discussed below are causing us to shift our near term outlook from “neutral/negative” to “neutral” for the major equity indexes.
- On the charts, all of the indexes closed higher yesterday with positive internals on healthy trading volumes. All closed at or near their intraday highs with sizable gains. However, in spite of the rally, it was not sufficient to lift any of the indexes above their short term downtrend lines or respective resistance levels. As such, the trends remain technically negative. Yet we do find all of the indexes now of “bullish stochastic crossovers” from prior low levels that offer a bit of encouragement. Yesterday’s sizable volume is also encouraging, in our view. Finally, while the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative, the % of SPX stocks trading above their 50 DMAs (page 9) lifted to 22.2% from 10.5%, showing a slight improvement.
- The data has toned down a bit in some cases while others remain very encouraging. The 1-day McClellan OB/OS Oscillators turned neutral as a result of the rally but the 21-day readings remain oversold (All Exchange:-20.67/-105.64 NYSE:-16.91/-95.51 NASDAQ:-22.86/-115.3). The detrended Rydex Ratio at -0.48 turned neutral as well. However, insiders continue to display a voracious appetite to buy their own stock as the Open Insider Buy/Sell Ratio (page 9) still stands at a seven year high at 213.3. As stated yesterday, if they were concerned about forward earnings growth, it would be hard to justify this action. As has been discussed previously, seasonality still offers a ray of hope. The November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Finally, valuation, assuming current estimates hold, is well below implied fair value with the forward 12-month earnings estimates for the SPX via Bloomberg at $172.19, leaving the forward 12 month p/e for the SPX at 15.6 versus the “rule of 20” implied fair value of a 16.9 multiple. The “earnings yield” stands at 6.42%.
- In conclusion, although the charts have yet to officially reverse to the upside, the issued discussed above are enough to alter our near term outlook for the major equity indexes from “neutral/negative” to “neutral.
- SPX: 2,615/2,691
- DJI: 24,447/25,000
- NASDAQ: 7,058/7,276
- NDX: 6,602/6,963
- DJT: 9,820/10,357
- MID: 1,771/1,863
- Russell: 1,464/1,539
- VALUA: 5,798/6,850