Insiders make their most aggressive purchases since March 2020
All major equity indices closed at or near their daily highs on Friday, with several seeing their short-term trends shift from negative to neutral as their short-term downtrend lines were breached.
Meanwhile, as the market’s cumulative extent remains negative, McClellan OB/OS 1-day oscillators remain oversold as insiders continued to buy their stocks with the most enthusiasm since March 2020.
We believe that given the chart reversals and the current state of the data, short-term resistance tests are still likely. The question is, “Given the size of air supply at these levels, will multiple attempts to breach said resistance be required before being breached?”
On the charts
All major equity indices closed higher on Friday with positive internals on the NYSE and Nasdaq as volumes fell from Thursday’s levels. All closed at or near their highs for the day.
The S&P 500 (see above), DJIA, Nasdaq Composite and Nasdaq 100 all closed above their short-term downtrend lines, turning said trends from negative to neutral. The others remain in short-term downtrends, but also look set to breach their downtrends.
While Friday’s magnitude was positive, the cumulative up/down lines for the All Exchange, NYSE and Nasdaq remain negative.
The S&P 500, DJIA, Nasdaq Composite and Nasdaq 100 remain on bullish stochastic crossover signals with the rest oversold.
The data, in our view, continues to suggest that more potential is available.
The McClellan 1-Day Overbought/Oversold oscillators remain in oversold territory after Friday’s strength. (All trades: -75.57 NYSE: -85.52 NASDAQ: -69.27).
The percentage of S&P 500 issues trading above their 50-day moving averages has risen to 36%, but remains close to levels coinciding with corrective lows.
Open Insider’s buy/sell ratio (see below) jumped further to 113.7 from 109 and finds insiders making their most aggressive buying since March/April 2020 lows.
The Open Insider buy/sell ratio is 113.7 (slightly bullish)
By contrast, the trendless Rydex ratio (a contrarian indicator), measuring the action of leveraged ETF traders, slipped further to a slightly bullish 0.07 as they head for the highs while the insiders gobble up the shares.
Last week’s contrarian AAII bear/bull ratio jumped to a very bullish 1.53 while Investors Intelligence’s bear/bull ratio (25.0/39.8) (contrary indicator) saw the number of bulls fall noticeably.
Market valuation and returns
Bloomberg’s consensus 12-month earnings estimate for the S&P 500 rose to $223.23 per share. As such, the S&P forward P/E multiple is 19.9x, with the “rule of 20” finding an approximate fair value at 18.2x.
The S&P’s forward earnings yield remained above 5% at 5.04%.
The 10-year Treasury yield fell to 1.78%. We see support for the 10y at 1.60% with resistance at 1.93%.
While the overhead resistance levels may prove formidable, we believe that tests of this resistance remain likely given the improving charts as the data lights remain green.
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