Most Sideways Patterns Persist

Insiders Resume Selling Activity

Opinion

All of the indexes closed higher yesterday with positive internals as volumes rose on the NYSE and declined on the NASDAQ from the prior session. While there were a couple of improvements on the charts, sideways patterns dominate and persist. The data remains largely neutral with the exception of some of the cautionary psychology data. As such, our near term “neutral” outlook for the major indexes remains intact while extended forward valuation of the SPX to historic highs keeps the intermediate term view “neutral” as well.

• On the charts, all of the indexes closed higher yesterday with positive internals. Improvements came in the form of the COMPOQ (page 3) making another new closing high while the DJT (page 3) closed above resistance and its short term downtrend line. However, the DJT action only moved the pattern from negative to neutral. As such, all of the indexes, with the exception of the COMPQX, remain in their sideways patterns that have been in place for the past month. The VIX (page 9) remains at its 12-month lows and continues to imply an eventual return of volatility into the markets.

• The data remains largely neutral as well, including all of the McClellan OB/OS Oscillators (All Exchange:+14.63/+15.0 NYSE:+39.54/+40.49 NASDAQ:+7.12/-0.44). The Equity Put/Call Ratio is a neutral 0.63 along with the Total Put/Call Ratio at 0.84. However, the OEX Put/Call Ratio (smart money) has shifted to a bullish 0.59 as the pros have flipped to being long calls.

• The psychology data continues to be a concern, in our opinion. The crowd is overly bullish via the Investors Intelligence Bear/Bull Ratio (contrary indicator) as advisors are almost completely in the bull camp at 18.4./60.2 and the Rydex Ratio (contrary indicator) finds the leveraged ETF traders very leveraged long at 65.1. In sharp contrast, the Gambill Insider Buy/Sell Ratio has now slid back into bearish territory at 7.0 as insiders have returned to being active sellers of their own stock at current levels. Psychology is warning.

• In conclusion, while we have some concerns as noted above, there still is a lack of enough evidence to alter our near term “neutral” outlook for the major equity indexes.

• Forward 12-month earnings estimates for the SPX from IBES of $132.12 leave a 5.81 forward earnings yield on a 17.2 forward multiple, a 12-year high.
• SPX: 2,237/2.277
• DJI: 19,735/19,975
• NASDAQ: 5,432/NA
• DJT: 9,000/9,317
• MID: 1,659/1,690
• Russell: 1,352/1,388
• VALUA: 5,262/5,388