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Insider Disinterest



One of the interesting facets of analyzing the market is studying what is being reported in the financial press, how it is being interpreted and whether there is any support for the given interpretation. One such instance happened today when a Reuters News (quoting Thomson Financial) reported 3rd quarter Insider buying vs. selling was at a 10-year low and the $239 million in purchases by corporate insiders was the lowest level since the 4th quarter of 1994, according to Lon Gerber at Thomson Financial.

The news item stated the insider's selling vs. buying marked "a 10-year low in bosses' faith in their own companies' stock." No one can look at this news item without drawing a negative conclusion. If insiders aren't willing to buy their own stock and are in fact broad sellers, why should anyone else?

Let's take a look at the current market and then the last time insider buying was so low vs. selling and from an actual $ purchase amount, again using the Reuters news item derived from a Thomson Financial Report.

Exhibit 1 - Insiders are not buying...why should anyone else?

Exhibit 2 - The lowest level of Insider purchases since 1994 was a good signal...just not the one most expect.

Source of Graphs...who else? - Reuters

We do not want to suggest the equity markets can't correct, because that is the nature of the beast. We do wish to highlight how important it is to look past what is being used as a potential market influence and checking to see if it has some foundation in reality. Maybe over the next few weeks, Corporate Insider activity, the weak Dollar or geo-political conflict may weigh on the market ... or maybe they are convenient excuses for profit taking in a market that has performed admirably due to fundamental improvement. Until the something changes in the intermediate-term fundamental or technical picture, we see no reason to change our optimistic view toward equities.

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No positions in stocks mentioned.
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