Corporate Insiders Are Cutting Back Their Stock Exposure

 | Jun 08, 2018 | 10:40 AM EDT
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Data continues to cast some cautionary shadows on the markets, with numbers now suggesting insiders have used recent market strength to lighten their exposure to stocks. Add that to the warning signs we mentioned Thursday.

No important technical events were generated on the index charts Thursday. The indices closed mixed, with the Dow Jones Industrial Average, Dow Jones Transports and S&P MidCap 400 posting gains as the rest declined. NYSE internals were positive while those on the NASDAQ were negative as trading volume increased there as well. All are in short-term uptrends expect the Dow Transports (see below), which remains neutral.

Source: Worden

The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50-day moving averages. However, we would reiterate our observation that the stochastic levels are overbought across the board with the one exception of the Dow Transports. While they have yet to flash bearish crossover signals and can stay overbought for extended periods, they do imply potential for some degree of retracement.

Meanwhile, the VIX, at 12.13, is near its 2018 lows, suggesting volatility may be on the horizon.

Data Shadows

While the 1-day McClellan Overbought/Oversold Oscillators for the All Exchange and NASDAQ have dipped back to neutral, the rest remain in overbought territory (All Exchange::+38.87/+63.01 NYSE:+51.5/+75.14 NASDAQ:+30.43/+56.79).

Insider selling has picked up to a notable degree since last week as the OpenInsider Buy/Sell Ratio has dropped from 45.4 to 28.1 (see below). While it remains neutral, this suggests insiders have used recent strength to reduce their equity exposure.

The OEX Put/Call Ratio is bearish at 1.45 as the pros are long puts. The Equity P/C is a neutral 0.56 with the Total P/C (contrary indicator) bullish at 0.92.

S&P 500 Valuation

The S&P 500 is close to fair valuation based on the forward 12-month consensus earnings estimates. The 17.0x multiple compares to the "rule of 20" implied fair value of 17.1x.

Near-Term Outlook

The stochastic levels combined with the OB/OS oscillators, insider selling, VIX and valuation suggest we keep our "neutral" outlook for the major equity indices as better buying opportunities may present themselves over the near term.

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