We post various types of Bonus articles in our MarketPlace to show appreciation for our Daily Ratings Reports subscribers. Our timely post last weekend included both our Monthly Special Screens, as well as our latest read of insiders’ market sentiment, as relayed by our proprietary Insider-Based Market Indicator. And now we’re releasing the post to the wider SeekingAlpha community.

Click the link below to view our Monthly Insider Special Screens!

InsiderInsights_MonthlyScreens_20190301.pdf

The specific screens in the PDF above are run on all the insider transactions filed at the SEC during February, and include:

  • CEO & CFO Buying & Bullish Rating;
  • Low Price/Cash & Bullish Rating;
  • High Indicated Yield & Bullish Rating;
  • Low Price/Tangible Book & Bullish Rating;
  • Microcap Stocks with Bullish Rating;
  • Opting In with Bullish Rating;
  • Price Momentum & Bullish Rating;
  • Short Interest High & Bullish Rating;
  • Short Interest High & Bearish Rating, and;
  • Negative FCF & Bearish Rating.

Inside the Market

The number of stocks on our most recent Special Screens also related to insiders’ overall market sentiment as well.

By the end of last week, our Insider-Based Market Indicator scored its eighth straight week of confirming this current bullish market trend; falling sharply during the week from a recent peak of +35% hit during the week ending January 4th, down to a present –150%. This is the longest uninterrupted bullish signal our Insider-Based Market indicator has flashed in years.

A seeming inconsistency to our presently bullish market stance is that the number of new Significantly Bullish insider signals on our Daily Ratings Reports is now relatively low compared to the enormous volume insiders generated on a daily basis last December, when the market was tanking wholesale. But that is absolutely the pattern of insider signals we expect at this point in a market recovery.

In a victory for common sense, insiders tend to buy low and sell high. They tend to be early with their buys, but they also tend to be right over a year’s holding period. Insiders bought heavily during Q4’s market stupidity, and are now buying less and selling more after the stellar market rebound. That’s totally expected.

February’s Special Screens also reflect this normalcy. There are clearly fewer stocks on the bullish tables in the most recent Screens than what was on the Special Screens generated on December’s insider activity.

Insiders were clearly pounding the table last December telling us all that the current fab rebound we’ve been benefiting from over the past two months was in the cards. And the timing of the rebound was confirmed during the week of January 4th when our Indicator finally made a bullish inflection downwards from a relatively high absolute level of +35%.

Yes, the market still fell all through December as insiders steadily picked up their buying activity. And we could not predict mid December precisely when the rebound would begin as the bearish inflection upwards in our Indicator was underway all through the month.

But our confidence that last December was a buying opportunity grew as our Indicator punched northwards into positive territory. And since our investment horizon is more than just a few months, getting fully invested by the end of last year was a no-brainer for us—as it should have been for everybody.

Now we are in the exact opposite position. Though our Indicator technically remains in a bullish stance, the waning number of new “Bullish” InsiderInsights Company Ratings combined with the now historically low absolute level for our Indicator is telling us that the market’s strong recovery is getting old.

The problem, of course, is that we don’t know precisely when the bearish inflection back north in our Indicator will occur. Just as the market sank lower right at the end of December before our Indicator officially turned bullish, the market could well have a blow-off top in coming weeks before the bearish foreshadowing of our Indicator plays out. This week’s market action, however, does appear to be confirming insiders’ concern rather quicker than that.

As long-time clients are aware, our Insider-Based Market Indicator is definitely not constructed to be a short-term trading signal. Predicting a market move in advance is the classic sucker’s game. Trying to confirm a market trend asap after it begins is a much more reasonable endeavor.

Ours is an “incidental” indicator built to confirm—or not—longer-term trend changes in the market just after they begin. That acknowledged limitation was no big deal a lifetime ago when our Indicator typically generated one or two (very reliable) signals a year. But when market trends play out as quickly and intensely as they have recently, our Indicator is admittedly a bit out of its element.

That doesn’t stop us from using some common sense when we see the volume of Ratings and the absolute level of our Indicator form a pattern we’ve seen foreshadow a change many times before, however. That’s what (correctly) guided us to get fully invested last December before our Indicator confirmed this year’s rebound. And the more bearish looking omen from these same metrics now has us more likely to do the following:

  • Close a position if its momentum looks overextended or vulnerable;
  • Not be complacent to buy an insider-approved long idea that is 10% or more above where insiders bought in, and;
  • Consider adding a short position.

Then again, if a position doesn’t start to show individual technical weakness, we’re not going to assume it’s time to bail. And if you’re a longer-term investor who knows the fundamentals of your pick are sound and supportive of more upside over the next year or two no matter what the market does in the short term, the caution light we’ve just flashed may be inconsequential.

But our job is to relay intelligence from insider data as it comes in, and we’ve just done so. If the situation changes, we’ll change our view. And we’ll definitely be updating our Daily Ratings Reports subscribers if and when our Indicator confirms a change of market trend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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2019-03-10