More Consolidation Likely

Insider Buy/Sell Ratio: Rydex Ratio Weakens Further

The major equity indexes closed mostly lower Thursday. However, in contrast to recent sessions, market internals were actually positive on the NYSE and NASDAQ as trading volumes rose from the prior session. Nonetheless, most closed near their lows of the day, with three of the charts ending below their near-term uptrend lines and are now neutral versus their prior positive slopes. The data is mixed but the Insider Buy/Sell Ratio:Detrended Rydex Ratio deteriorated a bit further. As such, while we maintain our near-term macro-outlook for equities at “neutral/positive, the charts data and valuation suggest some further consolidation of the recent rally gains is more likely before further progress may be seen.

On the charts, the indexes closed mostly lower yesterday, but internals were positive on the NYSE and NASDAQ as trading volumes rose from the prior session.

• Despite the positive internals, however, the S&P 500, Dow Jones Industrial Average and Russell 2000 Futures closed below their near-term uptrend lines and are now neutral versus their previous bullish implications.
• So, we now find the NASDAQ Composite, Nasdaq 100 and S&P Midcap 400 positive with the rest neutral.
• Cumulative market breadth remains neutral on the NASDAQ and all exchange with the NYSE’s still positive.
• The stochastic levels remain overbought but have yet to generate bearish crossover signals.

Looking at the data, the McClellan 1-Day OB/OS Oscillators remain neutral on the all exchange and NASDAQ, while the NYSE’s remains overbought (All Exchange: +45.34 NYSE: +65.33 NASDAQ: +31.57).

• The percentage of SPX issues trading above their 50 DMAs dipped to 68% and remains neutral but near the upper end of its range for the year.
• The Open Insider Buy/Sell Ratio dropped to 36.8 but also remains neutral.
• Meanwhile, the detrended Rydex Ratio measuring the action of the leveraged ETF traders rose to 1.32 and remains bearish. In our view, this shift in the Insider/Rydex dynamic may be worth noting.
• This week’s contrarian AAII Bear/Bull Ratio dipped to 1.23 but remains bullish as the crowd remains nervous and unwilling to embrace recent market strength. But the Investors Intelligence Bear/Bull Ratio (24.4/55.0) did a total flip flop from the prior week as bulls now outweigh bears yet remains neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dropping to $216.03 for the SPX. As such, the SPX forward multiple is 22.1 and near peak 2021 levels with the “rule of 20” still finding fair value at approximately 18.5.
• The SPX forward earnings yield is 4.52%. We would note the forward estimates for the SPX may lift next week as has been the case throughout the past year as a new forward quarter is added.
• The 10-year Treasury yield dipped to 1.52%. We view support at 1.38/% and resistance at 1.58%.

In conclusion, we remain “neutral/positive” in our near-term macro-outlook for equities while the charts, data and valuation suggest some further consolidation of recent gains may be more likely.

SPX: 4,694/NA
DJI: 35,960/NA
COMPQX: 15,510/15,983
NDX: 16,300/16,607
DJT: 15,983/16,524
MID: 2,777/2,866
RTY: 2,200/2,250
VALUA: 9,678/9,972