Thread: Today the SOROS funds predicted imminent rally. Also Barrons Online have an article on general market insider buying as a new trend.
Some excerpts follow.
Victor
________________________
"Weekday Trader
Amid the Gloom, Insiders Are Buying Again
By Vito J. Racanelli
With the world's economic news recently turning so grim, Wall Street
appears to be readying itself for the periodic Running of the Bears.
U.S. stocks have corrected on worries about global economic turmoil and slowing domestic profit growth. As of August 14th, the S&P 500 Index was off more than 10% from the all-time highs it set in mid-July, and as has been widely reported the broader market has done much worse. Many smaller stocks have suffered more than 20% declines, which many consider the threshold for a bear market.
But a funny thing is happening on the way to this bear market: Corporate insiders are suddenly snapping up shares in their companies. That's a 180-degree turn from the heavy selling seen among these folks between last February and April. (See Weekday Trader, "Insider Selling Flashes a Yellow Light for Stocks," April 2nd.)
Those who watch insider trading full time say this change of heart by the people who know their businesses best may be a strong signal that the market is nearing a bottom. Furthermore, the buying seems to have
intensified in the last month, even as the broad market was in full swoon, they say.
George Muzea, who heads up the Reno, Nev.-based Muzea Insider Consulting Services, says, "almost all of our analysis of [recent] aggregate insider data is positive. In the past, unanimity such as this has often occurred at significant stock market turning points."
Richard Cuneo, editor of Vickers Weekly Insider Report, adds that his
research shows the trailing, eight-week average insider sell/buy ratio was a "very bullish" 1.09:1 as of last week. Normally, the ratio is 2:1, and at the beginning of May it was a bearish 3.19:1, according to Vickers. The implication, says Cuneo: Insiders believe that the things that are rocking the market -- Russia's woes, fears of a Chinese devaluation, President Clinton's problems -- have nothing to do with the U.S. economy.
Furthermore, there have been "dramatic" turnarounds in sentiment among some market sectors, adds Bob Gabele, whose CDA/Investnet research firm tracks insider activity. Technology, chemicals, paper and forest products, aerospace/defense and energy stocks all have shown big shifts to net insider buying from selling in a very short time, he points out. That shouldn't be a surprise, because those groups have been among the worst-performing sectors in the stock market this year.
At the other end of the spectrum, corporate officials at retail,
broadcasting and television, advertising and newspaper/publishing companies are still selling shares, according to CDA.
Gabele notes that insider purchases are "concentrated in the small to
mid-caps." Again, no surprise, since many small-cap stocks are already down 20% or more, the definition of a bear market. Gabele is more cautious about the activity in large-capitalization stocks, where, he says, insiders are generally abstaining from selling shares rather than buying stock in the open market.
While Gabele asserts that it may yet be "a touch" early to conclude the market has hit bottom, "I'm inferring that there is plenty of value here."
One Wall Street market strategist who couldn't agree more is Alan Skrainka,who toils at St. Louis-based Edward Jones. The Asian economic problems are all very real and having a much bigger impact on U.S. corporate earnings than investors originally imagined, Skrainka says.
Yet, he points out, large profit shortfalls at certain
companies--particularly those directly exposed to Asia -- have lowered
average earnings gains significantly. (And in a market of winners and
losers, focusing on an average earnings increase is "simplistic" anyway, he says.) The long-term factors that drove the market higher remain in place, he maintains -- low inflation, interest rates and unemployment and strong consumer confidence. Simply put, insiders are buying "because they like the fundamentals of the U.S. economy," Skrainka concludes.............................And Cappy believes that insider buying in the broader market probably mirrors the experience at Dollar Thrifty. Executives who are comfortable
that an industry's fundamentals are solid, that a company will meet its profit projections and that the stock price will eventually reflect that "are going to jump in and buy," he says.
Of course, insiders are known to be bargain hunters, and often they aren't the greatest market timers in the world. For example, George Muzea notes wistfully, insiders were buying heavily going into the 1973-1974 bear market.
Nevertheless, Corporate America appears to be bucking the market's recent retreat and is showing a lot of faith in the stocks of the companies these executives run.
Can investors be too far behind?
BARRON'S Online Weekday Trader |
