Are insiders smarter than the average bear ?
<Insiders Signal More Bear Market Ahead
Bottom-fishers beware: Insiders no longer are buying, and what used to
be called dips are looking more and more like bottomless pits.
The EDGAR Online Insider Trader Buy/Sell Indicator has fallen this month
to its lowest level since June 1998. And tallying all the Form 4s filed
with the Securities & Exchange Commission during the week ending March
16 indicates that there were 86% more companies with insiders reporting
sales than purchases.
Jonathan Moreland, editor of EDGAR Online Insider Trader, notes the low
in the summer of 1998 was immediately followed by a 17.1% decline over
three months in the S&P 500 Index. As soon as the index began to go
down, “Insiders were seeing bargains, and started purchasing more,” he
says.
But since the Nasdaq Composite Index peaked in March 2000, “There has
been a huge difference in the reaction of the Buy/Sell Indicator,”
Moreland says. “We did not see buyers rushing in this time.”
As you can see from this chart,
insidertrader.com
insiders have been increasingly pessimistic since the tech meltdown
began. The volume of insider purchases and sales were roughly equal
throughout the final eight months of last year, and began to turn
sharply lower in December.
Insider trading is a standard analytical tool, on the premise that
nobody knows companies better than their managements and directors.
Sometimes it coincides with investor sentiment in general: There was a
spike in net insider buying in the fourth quarter of 1999, when markets
were surging toward their bull-market peak.
But sometimes it anticipates outsiders. Insider buying tumbled in
January 2000, two months before the tech crash began, and by April, when
major indices had peaked, was roughly on a par with insider selling.
Buying has been generally weaker ever since.
Moreland’s buy signal is generated when there are 50% more companies
with insiders buying than selling. The sell signal is the opposite –
when insider selling has the edge over buying by 50%. It reached that
point earlier this month. “So even after the horrible decline of the
past year, this indicates to me that we have not yet hit bottom,”
Moreland says. >
Regards
Stephen |
