Insider Buys & The COVID Panic

Insider Buys: Follow Their Lead

Updated Feb 2023

First, V-readings are in the stratosphere, which seems fitting given the extreme moves we have seen in the sentiment arena and the markets. Higher V readings are associated with more volatility. Still, when the trend is positive (as is the current case), more significant 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.

Therefore, one should not be surprised by 1000-point moves in the Dow, for they will occur regularly. The Dow tacked on over 3600 points two weeks ago 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 pretty bullish on the long-term prospects of this market.

We are dangerously close to hitting the upper limit of the madness zone. Remember that before this pandemic, the gauge never even hit the 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 highly 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 of 2.00 is considered normal, and below 0.90 is considered 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 hefty 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 similarly 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 thoroughly examining the data, China has blatantly lied about the total number of deaths and infected individuals. At least 45K people died on the low end, 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 going to be a massive pushback against China.

As a result, it makes no sense to have any exposure to China as its stock market or real estate market stands 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 Buys: These Chaps are Still buying Hand Over Fist

Corporate executives and officers have been adding shares of their 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 more favourable.” https://yhoo.it/2wmO3P6

The trend is clear, and the insiders know this; otherwise, they would not purchase shares aggressively.

Panic Sell offs Culminate With Buying Opportunities

When the panic subsides, it will create a feeding frenzy of the likes we have never seen before. Insider Buys already indicate that the markets will trend significantly higher in the coming months. When you combine zero rates, trillions of dollars being injected into the Stock market by the Feds and several more billion-dollar packages designed to stimulate the economy, the result will be a market melting upwards. The markets will be driven to unimaginable heights 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 challenging, as it is meant to shake out weak hands. However, those with the foresight to look at the big picture will benefit the most in the coming years.

Overview of Insider Purchases

A growing body of research suggests that following insiders, such as company executives and board members, can be a more effective game plan.

Insiders are individuals who are intimately familiar with the inner workings of their companies. They have access to information that is not available to the general public. As a result, they often have a unique perspective on the company’s prospects and can make informed decisions about when to buy or sell their stock.

Studies have shown that insider trading activity can be a reliable indicator of future stock performance. In a 2013 study, researchers found that stocks with insider buying outperformed the market by an average of 7.7% over the next year. On the other hand, stocks with insider selling underperformed by 4.4%.

Additionally, insider trading data can provide valuable insights into a company’s financial health and growth prospects. Insider buying can signal confidence in the company’s prospects. At the same time, insider selling can indicate potential problems or challenges.

Following insiders can be a valuable game plan for investors looking to make informed decisions and outperform the market. By analyzing insider trading data, investors can gain a unique perspective on a company’s prospects and make more effective investment decisions.

Research

The research suggests that following insider trading activity can be a valuable game plan for investors.

“Insider Trading and Stock Market Efficiency” by H. Nejat Seyhun – This paper examines the relationship between insider trading and stock market efficiency. The author finds that insider trading can be a reliable indicator of future stock performance and that stocks with insider buying tend to outperform the market. Link: https://www.nber.org/system/files/working_papers/w3541/w3541.pdf
“The Investment Value of Insider Trading” by Alan D. Jagolinzer – This study analyzes the investment value of insider trading and finds that insider buying is a stronger signal than insider selling. The author suggests that investors should pay attention to insider trading activity as a way to generate alpha. Link: https://www.jstor.org/stable/23312611
“Insider Trading and Future Return An Analysis of International Markets” by Sanjay Sehgal and Abhijeet Chandra – This paper examines insider trading activity in international markets and finds that insider buying is a significant predictor of future returns. The authors suggest that investors can benefit from following insider trading activity in global markets. Link: https://www.researchgate.net/publication/280909375_Insider_Trading_and_Future_Returns_An_Analysis_of_International_Markets
“The Insider Trading Debate” by The Wall Street Journal – This article discusses the ongoing debate over the legality and ethics of insider trading and provides insights from experts in the field. The article suggests that while insider trading can be a valuable signal for investors, it can also be a source of unfair advantage for insiders. Link: https://www.wsj.com/articles/the-insider-trading-debate-1428602583