Insiders Continue Active Buying
All of the indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as volumes rose form the NASDAQ but declined slightly on the NYSE , although still robust. Some of the index charts saw improvement with violations of near term downtrends and resistance levels discussed below. The data has yet to cast any substantive cautionary signals while some remain positive. Given the improvement on some of the charts as well as overall breadth, we are shifting our near term outlook form “neutral” to “neutral/positive”.
- On the charts, all of the indexes closed higher yesterday with positive internals. Technical improvements were seen on the SPX (page 2), DJI (page 2) and COMPQX (page 3) as all closed above their short term downtrend lines as well as near term resistance. While remaining below resistance, the RTY (page 5) also closed above its downtrend line. As such, the trends for the SPX, DJI, COMPQX and RTY are now neutral as the rest remain negative. Overall market breadth has improved a bit as well with the NYSE and NASDAQ cumulative advance/decline lines shifting from negative to neutral.
- The data, while moderating in some cases, remains encouraging, in our view. The 1 day McClellan OB/OS Oscillators remain neutral with the 21-day levels still oversold (All Exchange:+5.14/-90.89 NYSE:+6.42/-83.26 NASDAQ:+5.26/-97.39). The % of SPX stocks trading above their 50 DMAs (contrary indicator page 9) remains depressed at 21.4% while insiders continue their aggressive buying at levels not seen since 2011 at a 226 Open Insider Buy/Sell Ratio. Seasonality still offers encouragement. The November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Finally, valuation, assuming current estimates hold, is remains below implied fair value with the forward 12 month earnings estimates for the SPX via Bloomberg at $172.08, leaving the forward 12-month p/e for the SPX at 15.8 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.35%.
- In conclusion, we are of the opinion that the improvement on the charts and overall market breadth required in order to alter our “neutral” near term outlook for the major equity indexes may have begun. Thus it is changing to “neutral/positive”
- SPX: 2,682/2,749
- DJI: 24,776/25,374
- Nasdaq: 7,167/7,434
- NDX: 6,807/6,963
- DJT: 9,820/10,357
- MID: 1,790/1,863
- Russell: 1,464/1,539
- VALUA: 5,798/6,850