Insiders Increase Selling Activity On Decline
Opinion
The resistance levels referenced in yesterday’s report remained in force as the indexes suffered notable declines on very negative breadth and up/down volumes. Some of the charts saw further technical deterioration while investor sentiment remains relatively unfazed by the recent market weakness. Given the current state of the charts suggesting ongoing distribution with some additional data concerns, our near term outlook for the indexes remains neutral/negative.
- On the charts, all of the indexes took heavy hits with very negative breadth and volumes yesterday. Overall volumes did dip from the prior rally but remained well above average. The DJI (page 2) closed back below its 50 DMA as all of the indexes closed at or near their lows of the day. All of them are below their near term downtrend lines while the DJT (page 3) broke and closed below its long term uptrend line creating further technical concerns.
- While most near term support levels held, the DJT and MID were not as fortunate as their supports were broken and are adjusted below. The All-Exchange, NYSE and NASDAQ A/Ds remain in downtrends and made lower lows showing no evidence of reversal at this time. The ValueLine Arithmetic is now below both its 50 and 200 DMAs. As such, there are no indications of potential reversals at this time from the charts.
- On the data, the McClellan OB/OS Oscillators are all oversold for the NYSE: (-31.99/-81.77) and NASDAQ: (-73.91/-96.16) with the WST Ratio and its Composite bullish at 24.8 and 98.2. However, there are other data points we feel counterbalance the bullish OB/OS levels. The OEX Put/Call Ratio (smart money) at 1.54 shows the pros expecting more weakness while the new AAII Bear/Bull Ratio (contrary indicator) shows the “crowd” relatively unfazed by recent market weakness at a neutral 30.98/39.88. The Rydex Ratio (contrary indicator) remains a cautionary 44.7.
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- As well, insider activity is disturbing as it is doing the opposite of its typical action. Instead of insiders buying on weakness, we find them accelerating their selling to a lower 8.7 Gambill Insider Buy/Sell Ratio as the markets are dropping.
- In conclusion, both the charts and data suggest a neutral/negative outlook regarding near term prospects for the major equity indexes.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.71% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.19 versus the 10 Year Treasury yield of 2.33%.
- SPX: 1,929/1,970
- DJI: 16,673/17,016
- NASDAQ: 4,354,4,490
- DJT: 8,000/8,393
- MID: 1,316/1,370
- RUT: 1,056/1,108