Charts And Breadth Improve But Insiders Remain Sellers
The major equity indexes closed higher Thursday with positive internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volume rose from the prior session. All closed at or near their intraday highs with several resistance levels being violated to the upside. As well, cumulative market also saw improvement. However, while the charts and breadth statistics improved, some of the McClellan OB/OS Oscillators are now overbought while insiders have not eased their selling activity that is at levels that have frequently presaged market weakness as described below. As such, the OB/OS levels and insider action are restraining us from being more enthusiastic beyond shifting our near-term macro-outlook for equities from “neutral/negative” to “neutral”.
On the charts, all the major equity indexes close higher yesterday with positive internals on the NYSE and NASDAQ. All closed at or near their intraday highs for the second session in a row.
- Resistance levels were violated to the upside on all but the SPX (page 2) and DJI (page 2) that closed at resistance.
- As well, the COMPQX (page 3) and NDX (page 3) closed above their near-term downtrend lines.
- As such, the near-term trends are now bullish on the DJT page 4), MID (p[age 4), RTY (page 5) and VALUA (page 5) with the rest neutral.
- Cumulative market breadth also improved with both the All Exchange and NYSE A/Ds positive and above their 50 DMAs as the NASDAQ A/D turned neutral from negative but remains below its 50 DMA.
- No stochastic signals were generated.
The data finds the McClellan 1-Day OB/OS Oscillators for the All Exchange and NYSE now in oversold territory and suggesting some caution may be warranted for the very near term (All Exchange: +53.01 NYSE: +71.29 NASDAQ: +39.12).
- The detrended Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders remains neutral 0.25 as their bullish expectations have waned from their excesses at the market’s highs.
- As noted recently, the Open Insider Buy/Sell Ratio (page 9) remains in bearish territory and unchanged at 20.0% as insiders continue their selling activity. Over the past three years, this level has been achieved 8 times with 7 preceding some market weakness. In our opinion, it suggests some caution is warranted.
- This week’s contrarian AAII Bear/Bull Ratio (38.9/27.83) remains mildly bullish as the “crowd” has become cautious. The Investors Intelligence Bear/Bull Ratio (22.5/40.4) (contrary indicator page 9) saw a drop in bulls but remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $213.26 for the SPX. As such, the SPX forward multiple is 20.8 with the “rule of 20” finding fair value at approximately 18.5.
- The SPX forward earnings yield is 4.8%.
- The 10-year Treasury yield dipped to 1.52% after a recent run to 1.61%. We see resistance at 1.62% with support at 1.47%.
In conclusion, the charts and breadth are flashing green lights while the McClellan OB/OS and Insider Buy/Sell Ratio are cautionary. Thus, we are lifting our near-term macro-outlook for equities to “neutral” from “neutral/negative”.
SPX: 4,300/4,440
DJI: 33,914/34,951
COMPQX: 14,479/15,000
NDX: 14,652/15,150
DJT: 14,480/14,950
MID: 2,670/2,756
RTY: 2,240/2,290
VALUA: 9,464/9,827