Insiders Intensify Selling Activity
Opinion: All of the indexes closed lower yesterday with broadly negative internals as volumes rose on the NYSE and declined on the NASDAQ. Most closed near their intraday lows. Some short term uptrend lines were violated on the charts as the data has become more of a mixed bag of implications. We remain near term “neutral” in our outlook for the major indexes while extended valuation of the SPX keeps our intermediate term view also “neutral”.
· On the charts, all of the indexes closed lower with negative internals yesterday. While no support levels were violated, some clouds did begin to gather, in our opinion. The DJT (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) all closed below their short term uptrend lines with the MID and VALUA flashing “bearish stochastic crossover signals”, following the signal from the DJT during the prior session. While these do not necessarily forecast new downtrends, they do imply the potential of at least some sideways trade. Violations of support are required to become more concerned. We would also note the VIX (page 9) closed above its short term downtrend line suggesting a possible pickup in volatility. So the charts, while not outright negative, may be starting to dim from their recent luster.
· The data has become more of a mixed bag. All of the 1 day McClellan OB/OS Oscillators are now back at neutral along with the 21 day NASDAQ reading (All Exchange:+20.04/+57.3 NYSE:-7.59/+57.36 NASDAQ:-7.37/+42.95). The All Exchange and NYSE 21 day levels remain overbought. The Equity Put/Call Ratio and WST Ratio/Composite have turned neutral as well at 0.58 and 49.0/130.7 respectively.
· Yet there remains one disturbing data point, in our opinion. Insiders have escalated their selling activity pushing the Gambill Insider Buy/Sell Ratio deeper into bearish territory at 6.2. While we use a basket of indicators to avoid becoming overly influenced by one individual data point, the intensity of insider selling, by those assumed to be closest to an accurate assessment of future prospects, is of serious concern, in our opinion. The Gambill data tends to show strong insider buying at market lows as at the beginning of last November and selling near market short term peaks. So while the data has turned slightly benign, insider selling is disturbing.
· In conclusion, while all of the indexes fell yesterday, there was not enough damage done to alter our near term “neutral” outlook for the major equity indexes.
· Forward 12 month earnings estimates for the SPX from IBES of $130.94 leave a 5.79 forward earnings yield on a 17.3 forward multiple.
SPX: 2,199/NA
DJI: 19,115/NA
COMPQX; 5,306/5,400
DJT: 9,041/9,381
MID: 1,618/1,690
RTY: 1,334/NA
VALUA: 5,170/5,374