Insiders Accelerate Selling
Opinion: Based on the current state of the data and charts, we continue to have a short term cautionary outlook for the major equity indexes. Although the data remains mixed in general, insider buying has accelerated while the DJT chart continues to be a source of concern for us at the present time.
- On the charts, all of the indexes closed lower yesterday as volumes rose on the NASDAQ but declined on the NYSE. In both cases, breadth was broadly negative. While no notable support levels were violated, the DJI (page 2) did join the DJT by closing below its 50 DMA.
- The DJT, which we continue to pay close attention to, declined further and closer to its support level of 7,052 while flashing a “bearish stochastic crossover” signal as the %K crossed below the %D line with both below the 80 signal line. The stochastic is, in our opinion, not so much a trading signal but more of an confirming indicator suggesting potential for further corrective action. As noted in a recent report, our observation over the past several months has been that the DJT given important forward indications for the equity markets in general. Its current chart is suggestive of a potential “head and shoulders” formation. Should that pattern be fulfilled, it would send an important negative signal for the markets as a whole, in our opinion. As yet, no such signal has been triggered.
- On the data, yesterday’s drop brought most of the McClellan OB/OS Oscillators back to neutral with the exception of the NYSE 1 day that remains an overbought +61.55.
- Looking at sentiment, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) saw bears unchanged while the level of bullishness rose. The current 17.2/46.5 remains a negative signal, in our opinion. Meanwhile, insider selling has accelerated with the Gambill Insider Buy/Sell Ratio dropping to a bearish 8% as of 2/18. Insiders have been selling into the rally.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.6% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $120.69 versus the 10 Year Treasury yield of 2.73%.
- SPX:1,790/1,850
- DJI:15,710/16,373
- NASDAQ:4,123/???
- DJT:7,050/7,348
- MID:1,310/1,350
- RUT:1,111/1,169
