Open Insider Buy/Sell Ratio Turns Bearish
The major equity indexes closed mixed Wednesday with negative internals on the NYSE as the NASDAQ saw negative breadth but positive up/down volume. Total trading volume dipped on the NYSE and rose on the NASDAQ. Two of the index charts posted new all-time closing highs. Otherwise, the near-term trends remain unchanged with a mix of bullish and neutral implications. The data finds the McClellan 1-day OB/OS oscillators neutral. However, insider activity via the Open Insider Buy/Sell Ratio is now on a bearish signal as the leveraged ETF traders and other sentiment indicators show a historically low level of concern. When we combine the overly bullish sentiment with what appears to be extended valuation, we find ourselves at a bit of a standoff. The charts should be respected, until proven otherwise, while the data implies high levels of risk exist. Thus, we are maintaining our near-term “neutral” outlook for the equity markets for now.
On the charts, the equity indexes closed mixed yesterday with the SPX, COMPQX, NDX and DJT closing higher as the rest declined.
- The COMPQX and NDX did manage to post new all-time closing highs once again.
- Otherwise, no violations of trend or support were registered, leaving the COMPQX, NDX, MID, RTY and VALUA in uptrends with the rest neutral.
- Breadth remains positive with the cumulative advance/decline lines for the All-Exchange, NYSE and NASDAQ positive and above their 50 DMAs.
The data continues counterbalancing the positive chart trends, in our opinion.
- The 1-day McClellan OB/OS Oscillators remain neutral on the All Exchange, NYSE and NASDAQ (All Exchange: +5.78 NYSE: -1.32 NASDAQ: +11.81).
- It is the psychology data and valuation that remain important concerns for us.
- The Open Insider Buy/Sell Ratio (page 9) fell to 23.5 and is now officially in bearish territory as selling transactions have dominated throughout the recent rally.
- In contrast, the leveraged ETF traders, measured by the detrended Rydex Ratio (contrarian indicator), remain leveraged long at a bearish 1.45.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw little change at 16.8/64.4 but remains bearish as advisors remain at historically high levels of bullish opinions. Meanwhile, the AAII Bear/Bull Ratio saw a lift in bulls at 25.68/48.14 and remains near peak levels seen over the past decade as well.
- The valuation gap still appears extended with the SPX forward multiple of 23.1 on consensus forward 12-month earnings estimates from Bloomberg lifting to $160.33 while the “rule of 20” finds fair value at 19.1.
- The SPX forward earnings yield is 4.33% with the 10-year Treasury yield at 0.92%.
In conclusion, we reiterate the chart trends are generally positive and should be respected as technical sell signals have yet to appear. However, insider activity, historically high bullish sentiment and valuation suggest risk is present. Thus, we are staying “neutral” in our near-term outlook.
SPX: 3,620/3,720
DJI: 29,385/30,200
COMPQX: HVS11,929/NA
NDX: HVS11,990/NA
DJT: 12,497/12,747
MID: 2,200/NA
RTY: 1,840/NA
VALUA: 7,581/NA