Insiders Buy As The Crowd Sells
The bulk of the indexes closed lower Tuesday with the exceptions of the COMPQX and NDX. Internals were negative on the NYSE and NASDAQ as trading volumes rose from the prior session on both exchanges. The data continues to send some encouraging signals. So although the charts may appear dismal at this point, we remain of the opinion that a short term bottom is possibly being established presently for reasons discussed below. As such, we are maintaining our near term “neutral” outlook for the major equity indexes.
- On the charts, the COMPQX (page 3) and NDX (page 3) closed higher yesterday as the rest posted losses. The DJT (page 4) closed below support leaving it in its short term downtrend as are the rest of the indexes with the exceptions of the DJI (page 2) in its short term uptrend. The cumulative advance/decline lines remain negative for the All Exchange, NYSE and NASDAQ. However, we would reiterate our observation that the NASDAQ cumulative A/D is below its 200 DMA that has marked short term bottoms six times since 10/15. It suggests, from a historical perspective, that the recent slide may be near completion.
- The data is still sending some hopeful signals as all of the McClellan OB/OS Oscillators are oversold with the one exception of the NYSE 21 day that is neutral (All Exchange:-81.47/-52.96 NYSE:-75.58/-43.31 NASDAQ:-89.18/-62.99). The Open Insider Buy/Sell Ratio is at its highest level of comparative buying interest since 1/16 at 97.0. It is at levels that have also been coincident with short term market lows six times since 10/15. Insiders are buying as the crowd heads for the exits. The opposite is usually the case prior to important market tops. The Total Put/Call Ratio (contrary indicator) is a bullish 0.94 as the crowd is long puts. The one negative outlier is the OEX P/C that still shows the pros long puts and expecting more weakness. Valuation finds the forward 12-month earnings estimates for the SPX via Bloomberg at $172.66 leaving the forward 12-month p/e for the SPX at 16.7 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.0%.
- In conclusion, while the charts and market breadth look dreadful on the surface, there are a number of indicators that continue to suggest it may be unwise to follow the crowd in their rush to sell. Said historical indicators, in fact, suggest we may be near a near term market bottom. Thus we are keeping our outlook “neutral” for the present.
- SPX: 2,862/2,913
- DJI: 26,402/26,775
- NASDAQ: 7,729/7,889
- NDX: 7,300/7,490
- DJT: 10,985/11,259
- MID: 1,957/2,013
- Russell: 1,607/1,673
- VALUA: 6,4328/6,463
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