Bottoms Up or Top Down
Insider Action: Still Positive Despite New Highs
By Dr. Paul Price of Market Shadows
I put more faith in actual transactions with money on the line than sentiment surveys where people can say one thing while doing something else. The Thomson Reuters Insider Sell-Buy ratio has proven to be especially prescient in term of calling short-term (weeks to months) action in the broad market.
Open market corporate officer action that registers bullishly often coincides with buying opportunities. Seeing the indicator along with the corresponding movements in the S&P 500 confirms this.
Company officials understand their own firms intimately and welcome chances to buy low and sell high. Individual investors often go the other way by chasing momentum stocks that have already risen sharply.
The latest filings show insider buys in mostly lesser-known names.
The recent insider sell list was almost all in big name stocks.
Logic and history say it is better to invest ‘bottoms up’ based on valuation than ‘top down’ based on macro-economic factors. Even if you knew world event in advance the stock market action is often contrary to what might be expected.
Had you been privy to last week’s negative Q1 GDP announcement ahead of schedule would you have looked for bullish action?
