Insider Buy/Sell Ratio Sees Continued Increased Selling
The major equity indexes closed mostly lower Wednesday with negative internals on the NYSE and NASDAQ. A mix of positive and cautionary technical events were generated on the charts leaving most in their near-term uptrends. And while the data remains generally neutral, the combination of increased insider selling pressure versus the Rydex Ratio, that has historically been a prescient leading indicator, combined with valuation suggest we shift our near-term outlook for the equity markets to “neutral” from “neutral/positive”.
On the charts, the indexes closed mostly lower yesterday with negative internals on the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes declined from the prior session.
- No violations of support were generated. On the bullish side, the DJT (page 4) made another new closing high in contrast to the RTY (page 5) closing below its near-term uptrend line, turning its near-term trend to neutral from bullish.
- The rest remain in uptrends.
- Cumulative breadth for the All Exchange, NYSE and NASDAQ slipped a bit but remain positive at this point in time.
- Regarding stochastic levels, all remain overbought but lacking bearish crossover signals. However, given this morning’s indicated weakness for the markets, should said weakness persist through the end of the session, we think it likely said crossovers may be triggered at the close.
The data remains mixed.
- The 1-day McClellan OB/OS Oscillators saw declines in their overbought conditions and remain neutral (All Exchange: +26.27 NYSE: +19.51 NASDAQ: +24.03).
- However, we continue to see a ratcheting up of insider selling activity that brought the Open Insider Buy/Sell Ratio (page 9) down to 28.5. Readings below 25 are considered bearish signals.
- Meanwhile, the Rydex Ratio (contrarian indicator), while dipping slightly, remains on a bearish signal as the leveraged ETF maintain their leveraged long exposure at a bearish 1.15. We reiterate that, historically, insiders have been the on the right side of the trade within this dynamic.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 23.2/+54.6 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 42.68/28.62.
- The counterintuitive % of SPX issues trading above their 50 DMAs is neutral at 67.3%.
- The valuation gap remains extended with the SPX forward multiple at 22.4 with consensus forward 12-month earnings estimates from Bloomberg dipping to $155.54 while the “rule of 20” finds fair value at 19.3. However, we reiterate, said valuation extension has been present for the past several months.
- The SPX forward earnings yield is 4.46% with the 10-year Treasury yield at 0.72%.
In conclusion, while the charts are generally positive as of last night’s close, the increase in insiders selling into market strength combined with valuation suggest remaining “neutral/positive” may be pressing our bets. As such, we are shifting our near-term outlook for the markets from “neutral/positive” to “neutral”.
S&P 500: 3,419/3,586 DJI: 28,216/29,148 COMPQX: 11,367/12,065
NDX: 11,563/12,1962 DJT: 11,403/NA MID: 1,908/2,007
RTY: HVS1,600/1,650 VALUA: 6,4325/6,747