Insiders Buying Heavily As Crowd Continues Selling
Our next report will be issued on Wednesday, December 26. The indexes closed mixed Thursday with negative internals on the NSYE and NASDAQ as volumes declined on both exchanges from the prior session. Two of the indexes closed below their support levels keeping their near term trends negative while another closed above its near term downtrend line, turning its trend to neutral. As a whole, the chart trends remain mixed while the data is sending encouraging signs, especially regarding market psychology. Nonetheless, there is not enough evidence, in our opinion, to alter our current near-term “neutral” outlook for the major equity indexes as weak charts are countered by some positive data.
- On the charts, the indexes closed mixed with negative internals but on lighter volume. Negative signals came from the DJT (page 4) and MID (page 4) that broke below their support levels. On the other hand, the DJI (page 2) closed above its short term downtrend line, shifting its trend from negative to neutral. As such, the near term trends are evenly split between neutral and negative trends. Unfortunately, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain in downtrends and below their 50 DMAs. We need to see more violations of downtrends and resistance as well as better breadth in order to become more positive.
- The data finds all of the McClellan OB/OS Oscillators neutral (All Exchange: -27.87/-43.24 NYSE:-27.94/-41.45 NASDAQ:-29.98/-41.45). However, market psychology data is very positive as the detrended Rydex Ratio (contrary indicator page 8) finds the crowd very leveraged short at -1.05. They were heavily leveraged long in October, prior to the start of the correction. In sharp contrast, insiders are buying their stock with both hands at levels seen only five other times in the past decade with a 152.0 Open Insider Buy/Sell Ratio (page 9). In each of the prior cases, they occurred near market bottoms. 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 $170.30, 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 6.42%. 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, in spite of the bullish psychology data, we are unable to become more positive until some improvements are seen on the charts and general market breadth, thus leaving our near term outlook at “neutral”.
- SPX: 2,626/2,700
- DJI: 24,262/25,043
- NASDAQ: 6,930/7,200
- NDX: 6,526/6,800
- DJT: 9,540/9,909
- MID: 1,539/1,800
- Russell: 1,439/1,482
- VALUA: 5,692/5,819
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.