NYSE: Indexes Dip On Volume
Opinion: All of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose notably, implying institutional distribution. No important technical events occurred on the charts leaving the mix of neutral and positive short term trends intact. The data remains largely neutral as well. However, we continue to be concerned regarding historically high valuation of the SPX along with excessive bullish crowd sentiment while insiders intensify their selling activity. Thus we are maintaining our near term “neutral/negative” near term outlook for the major equity indexes as, in our view, the current risk/reward scenario is less than appealing.
On the charts, all of the indexes closed lower yesterday with negative internals as volumes rose notably on both exchanges. The surge in volume suggests possible institutional distribution. While no support levels or trend lines were violated, the MID (page 4) yielded a bearish stochastic crossover signal that would become actionable should the MID violate support. The RTY (page 4) closed on support but failed to violate. So the SPX (page 2) and DJI (page 2) remain in short term uptrends while the rest are neutral.
The data remains mixed but mostly neutral. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-11.52/+31.52 NYSE:-15.89/+49.2 NASDAQ:-34.92/+11.79) as is the OEX Put/Call Ratio at 1.34. However, the Gambill Insider Buy/Sell Ratio at 7.2 is bearish as insiders intensify their selling which, by some accounts, was at a six year high in the month of February at $7.8billion.
In conclusion, although there are no major sell signals on the charts at this point, the combination of the forward 12 month valuation of the SPX at a 17.9 multiple (a 12 year high) along with excessive bullish crowd sentiment as insiders are eagerly heading to the exits at the heaviest level in 6 years suggests to us that the potential for a sudden and meaningful market retracement is present. As such, we find the current risk/reward less than thrilling, leaving our near term “neutral/negative” outlook intact. Should the charts break, we would increase our caution.
Forward 12 month earnings estimates for the SPX from IBES of $132.21 leave a 5.57 forward earnings yield on a 17.9 forward multiple, a decade high.
SPX: 2,300/NA
DJI: 19,946/NA
COMPQX; 5,670/NA
DJT: 9,225/9,504
MID: 1,697/NA
RTY: 1,377/1,357
VALUA: 5,387/NA