The near-term trends are positive on all the major equity index charts as is cumulative market breadth. However, while the market data remain mostly neutral, there was a notable increase in insider selling activity Thursday.
So, while the charts are green, insider selling, elevated stochastic levels and rising 10-Year Treasury yields suggest we remain cautious as we enter a profusion of corporate earnings reports next week.
Let's take a close look at the charts and data.
On the Charts
The only index to close lower Thursday was the DJIA. The rest posted gains ending the session at or near their intraday highs. However, NYSE internals were negative while the Nasdaq's were positive.
Important technical events were registered on the S&P 500 (see above)), Midcap 400 and Value Line Arithmetic Index as all posted new closing highs. Also, the Dow Jones Transports closed above resistance.
As such, the charts are near-term positive across the board as are the cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq.
Yet we think it appropriate to note the stochastic levels are very elevated on all the charts, although no bearish crossovers have appeared thus far.
The data still find the McClellan 1-Day Overbought/Oversold Oscillator for the NYSE overbought with the All Exchange and Nasdaq neutral (All Exchange: +55.15 NYSE: +70.31 Nasdaq: +43.77).
The detrended Rydex Ratio (contrarian indicator), measuring the action of the leveraged ETF traders, remains neutral and unchanged at 0.92.
The Open Insider Buy/Sell Ratio (see below), however, saw a significant shift in insider activity as it fell to a bearish 21.4 suggesting insiders significantly stepped up their selling activity.
The Open Insider buy/sell ratio is 21.4 (bearish).
This week's contrarian AAII Bear/Bull Ratio (36.43/30.5) remained mildly bullish as bears still outnumber bulls. The Investors Intelligence Bear/Bull Ratio (22.7/42.1) (contrary indicator) remains neutral.
Valuation and Yields
The forward 12-month consensus earnings estimate for the S&P 500 from Bloomberg has dipped to $213.88 per share. As such, the S&P's forward P/E multiple is 21.3x with the "rule of 20" finding fair value at approximately 18.3x as the valuation gap continues to widen.
The S&P's forward earnings yield is 4.7%.
The 10-Year Treasury yield closed higher at 1.68%. Its uptrend remains intact with resistance at 1.70% and support at 1.47%. In our opinion, this trend could prove problematic for equities.
While the charts and market breadth are all positive, insider selling activity and the stochastic levels suggest we do not become complacent as we enter an abundance of earnings reports next week. We remain near-term "neutral" in our macro-outlook for equities.