Insiders Continue Buying As Contrarian Leveraged ETF Traders Sell
All the major equity indexes closed lower Wednesday with generally negative internals on the NYSE and NASDAQ as trading volumes dropped from the previous session. While all closed near their session lows and gave up the prior day’s notable gains, no violations of trend or support were registered, leaving them in their mix of bullish, bearish and neutral implications.
On the data side, only one index is oversold as of the close. However, insiders continue their buying activity while the contrarian indicator of the leveraged ETF traders continues to find them selling. As well, the recent hand wringing over the Feds recent comments still finds the 10 Year Treasury yield essentially unchanged. So, while we cannot with high confidence suggest the recent correction has been completed, the charts and data still suggest we keep out near-term “neutral/positive” macro-outlook for equities.
On the charts, all the major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as trading volumes declined from the prior session.
- But the sizable downdraft did not result in any technical violations on the charts as to their support levels and near-term trends. Said trends were unchanged with the DJI (page 2) positive, the SPX (page 2),. COMPQX (page 3), NDX (page 3) and VALUA (page 5) neutral with the MID (page 4) and RTY (page 5) negative.
- Cumulative market breadth remains less than optimal with the cumulative advance/decline lines for the All Exchange and NASDAQ negative and NYSE neutral. All are below their 50 DMAs.
- The SPX generated a bearish stochastic crossover signal.
Looking at the data, the McClellan 1-Day OB/OS Oscillators, only the NASDAQ is oversold with the rest neutral (All Exchange: -42.19 NYSE: -28.366 NASDAQ: -52.67). Of note, their 21-day levels remain at very oversold levels
- The % of SPX issues trading above their 50 DMAs dipped to 54% and remains neutral.
- The Open Insider Buy/Sell Ratio (page 9) rose to 61.8 as insiders did some buying, yet also remains in neutral territory.
- On the other hand, the detrended Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dropped to 0.83, staying neutral.
- In our opinion, the insider/Rydex dynamic lends a positive tone.
- This week’s contrarian AAII Bear/Bull Ratio rose to 1.2 as the crowd became more nervous and now has bullish implications. Bears now outnumber bulls. The Investors Intelligence Bear/Bull Ratio (25.3/39.8) (contrary indicator page 9) is still neutral but the number of bullish advisers dropped a notable 10 points.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $215.91 for the SPX. As such, the SPX forward multiple is 21.6 with the “rule of 20” still finding fair value at approximately 18.6.
- The SPX forward earnings yield is 4.62%.
- The 10-year Treasury yield slipped to 1.42%. We view support at 1.35% and resistance at 1.53%.
In conclusion, while volatility continues to rattle the boat and signs of a completed corrections are not immediately apparent, for the reasons noted above, we are maintaining our near-term “neutral/positive” macro-outlook for equities.
SPX: 4,633/NA
DJI: 35,319/36,159
COMPQX: 15,088/15,516
NDX: 15,780/16,069
DJT: 15,480/16,540
MID: 2,730/2,776
RTY: 2,150/2,220
VALUA: 9,522/9,716