Insider Selling Activity Highest Since Q1 2019
The major equity indexes closed higher Friday with positive internals on the NYSE while the NASDAQ saw positive breadth but negative up/down volume as overall trading volumes declined on both exchanges. All but one of the indexes made new closing highs while sell signals remain absent on the charts. However, the psychology data continues to be of concern as the leveraged ETF traders remain leveraged long while insiders have ratcheted up their selling activity to its highest level since Q1 2019 as per the OpenIinsider Buy/Sell Ratio. While not necessarily a death knell, the fact that insiders are active sellers while the ETF traders remain leveraged long continues to give us pause. As such, the positive charts combined with insider activity and valuation cause us to maintain our near-term “neutral” macro-outlook for the equity markets.
On the charts, all the indexes closed higher Friday with mostly positive internals on the NYSE and NASDAQ as trading volumes dropped from the prior session.
- All made new closing highs with the exception of the RTY that closed below its accelerated uptrend line and is now, in our opinion, in a neutral trend. All the other indexes remain in near term uptrends.
- As well, while the cumulative advance/decline lines for the All Exchange and NYSE remain positive, the NASDAQ’s has turned neutral, mirroring the RTY.
- All of the indexes continue to have elevated overbought stochastic levels but have not yet generated bearish crossover signals.
- In our opinion, the chart trends should continue to be respected until proven otherwise.
Regarding the data, the McClellan 1-day OB/OS Oscillators remain neutral (All Exchange: +26.28 NYSE: +27.74 NASDAQ: +24.04).
- However, the OpenInsider Buy/Sell Ratio has intensified its cautionary signal to its highest level since Q1 2019 at 18.0.
- As they line up at the sell window, the leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator page 8) are maintaining their very leveraged long exposure at a bearish 1.27.
- We repeat we have found the Rydex/Insider dynamic at these levels to typically be a prescient indicator regarding market pullbacks or at least pauses while it may not pinpoint the exact timing.
- Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remained on a bearish signal at 16.9/57.8 as bullish sentiment dipped slightly.
- Valuation continues to appear extended. The forward 12-month consensus earnings estimate from Bloomberg dipped to $172.38, leaving the SPX forward multiple at 22.8 while the “rule of 20” finds fair value at 18.8. Again, the valuation spread has been consistently wide over the past several months while the forward estimates have continued to rise consistently.
- The SPX forward earnings yield is 4.38% with the 10-year Treasury yield rising to 1.20%.
In conclusion, insider activity is becoming more of a concern as the ETF traders remain leveraged long. However, the lack of sell signals on the charts suggest we maintain our near-term “neutral” outlook for equities intact.
DJI: 31,143/NA
COMPQX: 13,600/NA
NDX: 13,400/NA
DJT: 12,577/13,000
MID: 2,450/NA
VALUA: 8,470/NA