The Ultimate Leading Indicator
Insider buying is one of the very few signals that have worked in trying to find stocks that might outperform the stock market.
And it makes sense, too, because while there may be a thousand reasons why an insider might sell, there is only one reason that he'll buy his stock and that is because he thinks the share price will go up!
So we find it a matter of concern to read a report by Thomson Financial stating that for every $1 of corporate insider buys this past January, there were $55 of insider sells.
Thomson Financial states: "January's indicator is the most bearish monthly reading that we've seen over the past decade." Thomson considers it to be "very bearish" when there are $20 of insider sales for every dollar of insider buys. So the current reading is off the charts!
Research into the actions of insiders prove that insiders tend to be right, but early - as much as six to nine months early. So when we see such a massive amount of insider selling - $55 sold for every $1 bought, the highest reading in a decade - we are likely within six to nine months away from some sort of market correction!
There are two important points to be noted here. First, the big picture is that insiders are selling in droves and that is an ominous sign. Large amounts of insider selling preceded many market downturns like the mid-1970s, the 1987 crash, as well as the flurry of insider selling that took place in 2001.
The second point to bear in mind is that corporate insiders buy heavily when their stock appears irresistible. So there is a chance that some stock with heavy insider buying could buck the trend of the overall market and actually rise because something big might be coming. Whatever it is, it's worth further investigation.
However, you should not rely on insider activity alone as a buy or sell signal. But whenever you see heavy insider buying of an individual stock, or heavy insider selling across the board, you absolutely cannot ignore its message!
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And it makes sense, too, because while there may be a thousand reasons why an insider might sell, there is only one reason that he'll buy his stock and that is because he thinks the share price will go up!
So we find it a matter of concern to read a report by Thomson Financial stating that for every $1 of corporate insider buys this past January, there were $55 of insider sells.
Thomson Financial states: "January's indicator is the most bearish monthly reading that we've seen over the past decade." Thomson considers it to be "very bearish" when there are $20 of insider sales for every dollar of insider buys. So the current reading is off the charts!
Research into the actions of insiders prove that insiders tend to be right, but early - as much as six to nine months early. So when we see such a massive amount of insider selling - $55 sold for every $1 bought, the highest reading in a decade - we are likely within six to nine months away from some sort of market correction!
There are two important points to be noted here. First, the big picture is that insiders are selling in droves and that is an ominous sign. Large amounts of insider selling preceded many market downturns like the mid-1970s, the 1987 crash, as well as the flurry of insider selling that took place in 2001.
The second point to bear in mind is that corporate insiders buy heavily when their stock appears irresistible. So there is a chance that some stock with heavy insider buying could buck the trend of the overall market and actually rise because something big might be coming. Whatever it is, it's worth further investigation.
However, you should not rely on insider activity alone as a buy or sell signal. But whenever you see heavy insider buying of an individual stock, or heavy insider selling across the board, you absolutely cannot ignore its message!
* * * * *
posted by Bob Moser at
4:15 PM
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