Guru Insider Research (III): Can Aggregated Insider Trading Activities Predict the Market of Different Sectors?

Can Aggregated Insider Trading Activities Predict The Market Of Different Sectors?

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gurufocus
Jul 13, 2010
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This is the third article in our Guru Insider Research series. We have found that aggregated insider trading activities can predict the market and help investors locate the market bottoms during market crashes. The question we like to answer here: Can aggregated insider trading activities in a sector predict the future market return in this sector?


These are the links to the previous two articles





In the second article we have found that insiders as a whole are not only smart sellers, but also insider buyers. The ratio of insider buys over insider sells can serve as a good indicator for market bottoms. In this article we like to show that this conclusion can also be applied to the market sectors.


We have studied the aggregated insider trading activities within the different sectors. The sector insider trading activities are compared with the ETF in this sector. These are the sectors and the corresponding ETFs.


ETF

Sectors

SPY

Broad Market

XLE

Oil & Gas

IYM

Basic Materials

IYJ

Industrials

IYK

Consumer Goods

IYH

Health Care

IYC

Consumer Services

IYZ

Telecommunications

IDU

Utilities

IYF

Financials

IYW

Technology




As shown in the broad market, the ratios of aggregated buys to sells in different sectors show that this ratio can predict the returns in the sectors, too. These are the ratios and the corresponding sector ETFs from 2004 to current.


Sector: Oil & Gas

xle_ratio.jpg


Sector: Basic Materials

iym_ratio.jpg


Sector: Industrials

iyj_ratio.jpg


Sector: Consumer Goods

iyk_ratio.jpg


Sector: Health Care

iyh_ratio.jpg


Sector: Consumer Services

iyc_ratio.jpg


Sector: Telecommunications

iyz_ratio.jpg


Sector: Utilities

iyu_ratio.jpg


Sector: Financials

iyf_ratio.jpg


Sector: Technology

iyw_ratio.jpg


We can see that the ratios of the aggregated insiders buying over selling do reflect their confidence in the future sector returns, and the ratios reach maximum when the best buying opportunities come.


GuruFocus is developing new features for idea generations and broad market indications based on the insider activities. These features will be released soon to subscribers. In the meantime, you can access insider related features:


  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

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