Insiders Further Increase Selling ActivityOpinion
All of the indexes closed higher yesterday with positive internals as volumes declined on the NYSE and increased on the NASDAQ from the prior session levels. However, the violations of short term uptrend lines on some of the charts discussed in yesterday’s report were not resolved. The data is largely neutral but shows a disturbing increase in insider selling activity while forward valuation of the SPX is at a 12-year high. So, given the state of the charts and data, we are maintaining our near term “neutral” outlook for the major equity indexes while extended valuation keeps the intermediate term view “neutral” as well.
- On the charts, all of the indexes closed higher yesterday with positive internals. However, the DJT (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) remained below their short term uptrend lines that were violated at the close of Wednesday’s session. They also remain on “bearish stochastic crossover” signals. While these developments do not necessarily assure new downtrends being initiated at this point, they do imply a change from the prior uptrends to the probability of some sideways action. Lower short term lows with negative breadth would be required to actually turn them negative. Nonetheless, it suggests the possibility of some fatigue setting in. The SPX (page 2), DJI (page 2) and COMPQX (page 3) remain above their uptrends at this point.
- The data is now largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-1.26/+47.46 NYSE:-0.34/+47.8 NASDAQ:+5.74/+43.43). Yet two sticking points are worthy of note. While the Investors Intelligence Bear/Bull Ratio (contrary indicator) finds advisors dangerously and overly bullish at 19.4/59.6, the Gambill Insider Buy/Sell Ratio is very bearish at 5.0 as insiders continue to ramp up their selling activity to near historic levels. We frequently find these two indicators at opposite ends of their spectrums with advisors usually on the wrong side of the trade. So while the rest of the data is noncommittal, the fact that insiders are actively looking for an exit is of concern.
- In conclusion, some slight weakening of the mid and small cap index charts combined with the psychology data noted above suggests we should continue our near term “neutral” outlook for the major equity indexes.