Insiders Bought Weakness
Opinion: Our next report will be issued on Tuesday, July 5th. All of the indexes closed higher yesterday with strong internals once again, post the Brexit panic low. Volumes declined slightly on the NYSE and were flat of the NASDAQ but remained above average. All closed at or near their intraday highs. Several resistance levels were violated on the charts along with some other positive technical developments. The data is largely neutral but shows insiders were buyers of the recent weakness. As such, in spite of the substantial move off of the recent lows, we are shifting our near term outlook to “neutral/positive” from our prior “neutral” opinion.
- On the charts, all of the indexes closed higher yesterday with strong internals and at or near their intraday highs. Several positive technical events occurred.
- The SPX (page 2), DJI (page 2), COMPQX (page 3), MID (Page 4) and VALUA (page 5) all closed above their near term resistance levels.
- As well, the SPX and DJI closed back above their intermediate term uptrend lines.
- The COMPQX and DJT (page 3) registered “bullish stochastic crossovers as well while the RUT (page 4) closed back above its 200 DMA.
- Thus the technical picture has improved, in our view.
- The data remains largely neutral with a couple of encouraging points. All of the McClellan OB/’OS Oscillators are neutral (All Exchange:+22.87/+23.12 NYSE:+30.44/+51.79 NASDAQ:+16.21/-7.96) with the exception of the NYSE 21 day that is mildly overbought. So no significant overbought conditions exist. The Equity Put/Call Ratio (contrary indicator) is a neutral 0.58 while the OEX Put/Call Ratio at 0.76 is bullish as the pros have gone long calls, expecting some further strength. We would also note the Gambill Insider Buy/Sell Ratio increased nicely and into bullish territory to 26.8, indicating insiders saw the recent market weakness as a buying opportunity. So the data, as a whole, is slightly positive.
- In conclusion, although the indexes have already moved up substantially from their recent panic lows that would usually temper our outlook, the charts and data have improved enough to cause our near term outlook to shift from “neutral” to “neutral/positive”.
- Forward 12 month earnings estimates for the SPX from IBES of $125.54 leave a 6.06% forward earnings yield on a 16.5 forward multiple.
SPX: 2,042/2,084
DJI: 17,404/17,730
COMPQX; 4,679/4,830
DJT: 7,048/7,533
MID: 1,437/1,478
RUT: 1,079/1,142
VALUA: 4,471/4,633