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Insider buying/selling 2005-2012

5 Ways to Know the Stock Market Bottom is In

  1. You don’t dread your statements any longer because you no longer open them and they just pile up in some dusty corner.

  2. Your investment advisor stops calling you. The last thing you want to do is buy more stocks.

  3. Stocks don’t go down on bad news any longer.  For example Apple’s recent earnings warning doesn’t send the stock down 8%. It might even go up.

  4. The Federal Reserve reverses its rate normalization and folds and signals it’s ready to “accommodate” the market.

  5. Corporate insiders (officers and directors, not hedge funds and index/quant funds) stampede into the market buying great quantities of their company’s stock.

Every market sell-off of this magnitude in the last thirty years has ended when insiders heavily bought their companies’ stock. We are paying particular attention to this indicator now even more than usual as the buying has spiked, but not at levels that make greedy. Unfortunately we are at the end of the quarter and insiders are in what is known as a “blackout period”. This prohibits them from buying their own stock so close to earnings being released. This makes easy pickings for short sellers and in my opinion is partly responsible for the sharp declines we are witnessing.

This turnaround can happen rapidly. There is no clarion call to say the sell-off is over. Yes, the political climate is terrible but even while Bill Clinton was brought up for impeachment, stocks made spectacular gains that year. Insiders bought heavily in the depths of the great recession, both in the Fall of 2008 and the Spring of 2009 and during the budget debacle/debt downgrade in 2011 to be rewarded very soon afterwards.

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Insider buying/selling 2012-Present

The graphs above illustrates the ratio of insider buying/selling and the S&P 500. The red line rising is a positive trend of insider buying. The red line declining is the opposite. The blue line is the market as represented by the S&P 500, the standard benchmark professional money managers fail to beat.  There is a very sharp uptick in insider buying that just happened but BEWARE.   For a real rally to occur, one that can rise 20% or more,  all five of the above conditions must exist.  Although we are at the highest levels of buying this year, we are still below 1.0  More insiders are selling than buying.

If you look closely at the first chart above, you will see that during 2008-2009 the insider ratio then reached 2.0.  Even in the Fall of 2011 after the U.S. sovereign debt downgrade, the insider ratio approached 1.25. I suspect, though we will see a sharp uptick in buying soon as quarterly earnings get released. Insiders who have been sitting on the sidelines due to the  earning’s imposed “blackout period”, may move aggressively to take advantage of some choice prices . Many stocks are down 20-40% from recent highs.

Remember the time to invest is when we least like it, not when we most like it. The Insiders Fund is the only fund in the country devoted to carefully monitoring, tracking, and acting on insider intelligence. There is blood on the streets now and this is the time to act. Call or email me at hsax@theinsidersfund or 435-658-1934 to find out the best way and time to take advantage of  this perhaps once in a decade opportunity.

Sincerely,

Harvey Warren Sax