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Some Downtrend Lines Violated

Published 12/13/2018, 10:38 AM
Updated 07/09/2023, 06:31 AM

Insider Buying Elevates

All of the indexes closed higher Wednesday although notably below their intraday highs. Internals were positive on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. The charts saw three of the indexes violate their short term trends to the upside, changing said trends to neutral from negative. The data is mostly neutral but insiders returned to very active buying during recent weakness. So while we remain encouraged for the reasons discussed below, there is not quite enough evidence at this point to alter our near term “neutral” outlook for the major equity indexes.

  • On the charts, all of the indexes closed higher yesterday but late day selling left them near their intraday lows in most cases. Nonetheless, the SPX (page 2), COMPQX (page 3) and NDX (page 3) managed to close above their short term downtrend lines that shift those trends to neutral. The rest remain in near term downtrends as do the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ that saw minor improvement.
  • The data is mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:-4.22/-47.3 NYSE: -11.6/-47.02 NASDAQ:+1.74/-47.05). The OEX Put/Call Ratio is bearish at 1.65 as the pros are now long puts, expecting weakness. However, sentiment remains very encouraging, in our opinion. During the recent decline, the Rydex Ratio (contrary indicator (page 8)) saw the leveraged ETF traders increase their heavily leveraged short positions to a bullish -1.09 while insiders actively ramped up their buying activity to a positive 123.3 Open Insider Buy/sell Ratio (page 9). The ETF traders and insiders are typically at opposing opinions with the insiders historically being on the right side. Valuation still seems to be quite appealing as it is well below fair value, assuming current estimates hold, with the forward 12 month earnings estimates for the SPX via Bloomberg of $170.48, leaving the forward 12 month p/e for the SPX at 15.6 versus the “rule of 20” implied fair value of a 17.1 multiple. The “earnings yield” stands at 6.43%. Seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative.
  • In conclusion, while sentiment and valuation keep us optimistic for the longer term, there is not quite enough evidence currently to warrant a change in our near term “neutral” outlook for the major equity indexes.
  • SPX: 2,626/2,700
  • DJI: 24,262/25,043
  • Nasdaq: 6,930/7,200
  • NDX: 6,526/6,800
  • DJT: 9,764/10,218
  • MID: 1,770/1,826
  • Russell: 1,439/1,482
  • VALUA: 5,692/5,819

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