McClellan OB/OS Oscillators Moderate

Insider Selling Accelerates

Opinion

All of the indexes closed lower yesterday with negative internals as volumes rose on the NYSE but declined on the NASDAQ. All closed at or near their intraday lows. No support levels were violated while the short term uptrends remain intact. Yet while the charts remain constructive and the data remains largely neutral, insider selling has risen to disturbing levels, thus leaving us inclined to maintain our near term “neutral” outlook. And while breadth remains positive, valuation remains historically stretched, keeping our intermediate term outlook “neutral” as well.

• On the charts, all of the indexes closed lower yesterday and near their intraday lows with negative internals on both exchanges. However, no technical events of import were generated. As such, the charts remain constructive and have yet to generate what we would consider to be sell signals.

• The data has moderated for the most part as well. All of the McClellan OB/OS Oscillators are now neutral as a result of yesterday’s declines, with the exception of the 21 day NYSE that remains overbought at +66.5. The crowd was spooked enough yesterday to cause some put buying on their part to the point of now being heavy in puts with a .85 Equity Put/Call Ratio (contrary indicator) and 1.17 Total Put/Call Ratio (contrary indicator). The OEX Put/Call Ratio (smart money) saw the opposite action on the part of the pros as it is now a neutral 1.19 versus its prior bearish signal.

• Yet there is one data point we find quite disturbing, that being the Gambill Insider Buy/Sell Ratio. At the market correction lows, insiders via this metric were strong buyers of their stock as the crowd ran for the exits. However, at 4.9, this indicator now shows insiders to be very active sellers of their own stock. In fact, it is back at levels seen just prior to the correction that started in January. Such eagerness to sell by insiders is, in our opinion, enough to warrant keeping a near term “neutral” outlook for the indexes.

• For the intermediate term, we remain “neutral” as the forward 12 month p/e based on IBES forward 12 month earnings estimates has lifted to a 16.9 multiple and just shy of the level seen prior to the January correction.

• Forward 12-month earnings estimates for the SPX from IBES of $123.58 leave a 5.91% forward earnings yield on a 16.9 forward multiple.
• SPX: 2,074/2,106
• DJI: 17,541/8,114
• NASDAQ: 4,836/5,001
• DJT: 7,921/8,239
• MID: 1,451/1,491
• Russell: 1,093/1,146
• VALUA: 4,525/4,685

McClellan OB/OS Oscillators Moderate

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Written By: Guy S. Ortmann, CMT