Insider Buying And The Coronavirus Pandemic
First things first, V-readings are in the stratosphere, and that seems to be fitting given the extreme moves we have seen in the sentiment arena and the markets. Higher V readings are associated with more volatility but when the trend is positive (as is the current case), larger moves are experienced towards the upside once the markets stabilize. In other words, once these markets stabilise, the markets will move two to three steps forward and regress 1 step backwards.
One should therefore not be surprised by 1000 point moves in the Dow, for it’s going to occur regularly. Roughly two weeks ago, the Dow tacked on over 3600 points in less than three days. There is a strong chance that the Dow could still experience a 3000-point move in one day.
The “mother of all buy signals” is dangerously close at hand, another small downward move and our indicators will be in place to trigger this signal. We will cover insider buying activity shortly, needless to say, they are quite bullish on the long term prospects of this market.
We are dangerously close to hitting the upper limit of the madness zone. Bear in mind that before this pandemic, the gauge never even hit the extreme end of the hysteria zone. So, this is an unprecedented development. Given this massive move in the anxiety gauge, neutral readings would now need only to dip down to 10% to trigger the “father of all buy signals” provided our technical indicators move to the extremely oversold ranges, and the Trend indicator remains positive (bullish).
Three Weeks We noted that Insiders were backing the Truck Up
Insiders have been using this massive pullback to purchase shares, and one way to measure the intensity of their buying is to check the sell to buy ratio. Any reading 2.00 is considered normal, and below 0.90 is considered as exceptionally bullish. So what do you think the current ratio is; well, it’s at a mind-numbing 0.35, which means these guys are backing up the truck and purchasing shares.
So what are the readings today? Based on very heavy transaction volume, Vickers’ benchmark NYSE/ASE One-Week Sell/Buy Ratio is 0.33, and the Total one-week reading is 0.35. Insiders are not just buying shares, they are devouring shares. Insiders behaved in a similar fashion in late-December 2018, after stocks crashed on Christmas Eve; in early 2016, when stocks also corrected; and in late 2008/early 2009, at the depths of the Great Recession correction. Those were spectacular times to buy stocks. Insiders seem to be telling us that today offers a similar opportunity. https://yhoo.it/2TV0cE2
A small note on China
After looking at the data thoroughly, it goes without saying that China has blatantly lied about the total number of deaths and the number of infected individuals. On the low end, at least 45K people died, and 1.2 million were infected. On the high-end north of 5 million individuals could be infected with the coronavirus and the death toll could be above 200K.
No matter how you dice it, there is no way, Italy, Germany, France and the U.S. have higher death and infection rates than China. This means that there is a going to be a massive push back against China.
As a result, it makes no sense to have any exposure to China as its stock market or real estate market stand to get smashed when the U.S. launches a full-scale attack. And there is an excellent chance that most of the advanced nations in the world will join the U.S. in this offensive. The situation is going to heat up rapidly; expect the pace of the attacks to pick up once the death rate starts levelling off
Insider buying: These Chaps are Still buying Hand Over Fist
Corporate executives and officers have been adding shares of their own firms over the past few weeks at breakneck speed. So much so that they’re more bullish than they’ve been at most other points in the past decade, according to Sundial Capital Research.
Over that stretch — admittedly, one that occurred during a massive bull market — peak episodes of insider buying have been a good sign for stocks, with the S&P 500 up a median of 20% over the next year. Widening the lens back to 1997, the benchmark gained 12.6% in the 12 months that followed forceful insider buys. “There’s enough here to consider insider positions a positive,” Jason Goepfert, the president of Blaine, Minnesota-based research firm Sundial, wrote in a note Friday. “We just can’t assume it’s a pound-the-table buy signal like most of the other points over the past decade when trends were clearly more favorable.” https://yhoo.it/2wmO3P6
The trend is clear, and the insiders know this; otherwise, they would not be purchasing shares at such an aggressive pace.
When the panic subsides, it will create a feeding frenzy of the likes we have never seen before. When you combine zero rates, trillions of dollars being injected into the markets by the Feds and several more billion-dollar packages designed to stimulate the economy, the result is going to be a market melting upwards. The markets will be driven to heights that are unimaginable by today’s standards. Zero rates are also going to force a large portion of individuals on a fixed income to speculate. The initial bottoming out stage is always tough, as it is meant to shake out the weak hands. However, those that have the foresight to look at the big picture will stand to benefit the most in the years to come.