Outlook Turns “Neutral/Positive” From “Positive”
All of the indexes closed lower Monday with negative internals on the NYSE and NASDAQ as volumes declined on the NYSE from the prior session while those on the NASDAQ rose. The charts saw no violations of support but some did see violations of their short term uptrend lines to the downside, turning said trends to neutral. The data is largely neutral but insider selling is now at levels seen only two other times in the past decade. While not an efficient timing tool, their selling activity is worthy of note. So given the magnitude of the recent rally to important resistance levels, recent trading action and other issues discussed below, we are shifting our near term outlook from “positive” to “neutral/positive”.
- On the charts, all of the indexes closed lower yesterday with negative internals. While no support levels were broken, the NDX (page 3) and RTY (page 5) closed below their short term uptrend lines whose trends are now considered neutral, as is the DJT (page 4). The cumulative advance/decline lines for the All Exchange, NYSE and NASD are an important positive. However, the nearly vertical trajectory of the recent rally to the levels prior to the selloff causes us to question how much upside is left. Given that the vast majority of the charts are on bearish stochastic crossover signals combined with yesterday’s action, they may suggest said upside is limited from this point.
- Looking at the data, the one day McClellan OB/OS Oscillators remain neutral (All Exchange:-15.85/+64.48 NYSE:-17.41/+76.66 NASDAQ:-15.15/+55.91). The detrended Rydex Ratio (0.32) and new AAII Bear/bull Ratio (23.33/38.33) are neutral as well. However, insider activity is worth watching as the Open Insider Buy/Sell Ratio (page 9) finds insiders selling near peak levels seen only two other times in the past decade. This is the exact opposite of their activity at the end of last year. We would note however that the selling action is not nearly as effective as a timing tool as is buying. Markets have frequently continued to advance as insiders sold. Yet there is another concern regarding valuation. While the “rule of twenty” still finds the SPX slightly undervalued based on forward 12 month consensus earnings estimates for the SPX via Bloomberg at 16.7 versus 17.3, we are bothered by the fact the SPX has been rising over the past several weeks as forward estimates have actually declined from $171.00 to $167.45.
- In conclusion, we are simply suggesting that the weight of the evidence has shifted enough to warrant a tempering of bullish attitudes. As such, we are changing our near term outlook to “neutral/positive” from “neutral”.
- SPX: 2,745/2,812
- DJI: 25,858/26.370
- Nasdaq: 7,435/7,663
- NDX: 7,008/7,206
- DJT: 10,298/10,675
- MID: 1,898/1,956
- Russell: 1,546/1,587
- VALUA: 6,135/6,330