I understand – technical analysis is the cat’s meow for traders. Fundamental analysis is about as useful as a governor is in a racing car. I mean, what’s the point? A trader does not have time to search out the fundamentals of a market. The technical data says go, and so the trader goes.
If you trade purely on technical data and it works for you, I say, “Go get ‘em tiger.” If you find that trading purely on technical data does not produce the results you seek, then maybe mixing in some fundamental analysis with your technical analysis will help you improve your success rate. Some of the indicators I have mentioned in the last two articles are fundamental in nature, but the one today is about as fundamental as fundamental gets – are people on the inside of a company buying that market?
As I grow older, I pay less attention to what men say. I just watch what they do – Andrew Carnegie.
Carnegie is correct. Insider trading speaks to action. Insiders are either putting their money where their mouth is, or removing their money without moving their lips. Either way, insider trading is about faith, faith in a market. By the way, the SEC identifies an insider as a top-level corporate executive (CEO, COO, CFO, for example), or as someone who owns more than a 10% stake in a company.
Look for insider buying patterns. Is it just a solo buy here and there, or are all the executives buying in bulk? Are the executives buying lots of shares, or are the buys small lots? Are executives buying on weakness, or are they buying stock as the price rises? Are some buying and some selling, and, if so, what is the ratio of buying to selling?
As an indicator, it is hard to imagine any more telling than insider buying or selling. In the summer of 2005, housing-industry insiders were selling massive amounts of stock, and we all know what happened to that market7. In the spring of 2003, as the technology sector languished in oblivion after the great “tech meltdown,” one could track substantial insider buying of stock across the technological spectrum, and this set the stage for the rise in valuations for next three years.
Keep in mind, insider buying or selling is more telling for a sector than it is for an individual company. As always, “volume” is a major signal of impending change. As well, think about “insider” buying or selling on a broader scale. For example, when a country buys gold (or any commodity) in bulk (as India recently did and China is now doing), consider that “insider” buying. In the U.S. bond market, it is one thing when China buys our debt, but it is another, when U.S. citizens (insiders) buy up the bonds.
Remember, value is about perception. If insiders perceive value, or lack of value, utilize this indicator to help you make better trades.
Trade in the day; invest in your life …
