Insiders Continue Selling
Most of the indexes closed higher Wednesday with the one exception of the NDX posting a minor loss. All of the index charts remain in near term upends while the MID managed to close above resistance. The charts remain positive. The data, however, is a bit more mixed with some cautionary signals appearing. Nonetheless, while near term progress may moderate, given the state of the charts we are maintaining our near term “positive” outlook for the major equity indexes at this time.
- On the charts, only the NDX (page 3) closed lower yesterday as the rest posted minor advances. A positive technical event occurred on the MID (page 4) as is closed above near term resistance. As such, all of the index charts remain in short term uptrends as do the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ. While the stochastic levels remain overbought, they have been so through most of the rally and have yet to flash bearish crossover signals.
- The data remains a mix of neutral and negative signals. All of the McClellan OB/OS Oscillators remain overbought (All Exchange:+68.49/+87.94 NYSE:+75.26/+110.52 NASDAQ:+65.36/+69.63). Similar to the stochastic readings, the OB/OS oscillators have been in this condition through most of the current rally. While not a valuable “timing tool”, the Open Insider Buy/Sell Ratio (page 9) shows a continued increase in insider selling at a cautionary 19.8, a sharp contrast to their very aggressive buying in December. The spread between current SPX valuation versus “fair value” has shrunk from over 200 basis points to 80 over the past few weeks as the SPX has risen while forward 12 month estimates for the SPX from Bloomberg have declined to $167.66 from $171.00 a few weeks ago. Yet it remains “undervalued” at a forward 12 month p/e of 16.6 versus the “rule of 20” implied fair value of a 17.4 multiple. The earnings yield stands at 6.02%. Counterbalancing is the lack of investor exuberance as the new AAII Bear/Bull Ratio remains neutral at 26.0/35.0 as does the detrended Rydex Ratio at -0.07 (page 8).
- In conclusion, while the data suggests we keep our eyes open for some potential weakness, the charts showing no sell signals, strong internal breadth and valuation continue to suggest we keep our near term outlook “positive” at this point in time.
- SPX: 2,723/2,796
- DJI: 25,290/25,882
- Nasdaq: 7,236/7,501
- NDX: 6,845/7,110
- DJT: 10,298/10,675
- MID: 1,864/1,956
- Russell: 1,509/1,587
- VALUA: 6,097/6,330