Those who know, buy low
Nobody knows a company’s true worth better than the people running the firm.
High level corporate officers are almost always net sellers of their own stocks due to employee stock grants and options. When they turn into voracious buyers, it pays to notice.
That’s why the Thomson Reuters' insider transaction indicator flashes “bullish” whenever less than 12 shares of stock are sold for every one bought on the open market. The indicator only turns “bearish” when insiders dump more than 20 times the quantity they’d purchased in the prior week.
Last week’s scary sell-off put stocks on sale but made many traders too nervous to step up and buy. That was not true for insiders. The Thomson Reuters sell/buy ratio dropped down to just below 4x, near its very lowest reading of the past 12 months.
Bullish levels such as seen in the week ended Jan. 15 are typically excellent trading opportunities for those with relatively short (weeks to months) time horizons.
The charts above show the correlation of five previous insider buy signals (labeled A through E) with subsequent sharp rallies. Will the latest market plunge and buying surge end with another good bounce back? History says it will.
Stay tuned to find out.
Here is Barron’s list of recently reported substantial insider buys.
It might be worth checking these out. Never buy blindly, though. Do your own due diligence before committing any capital.
Disclosure: No positions in any of the stocks on the list shown above.
