Market Overview

Insider Sentiment is Bullish in Small Firms in Early February 2013

 

Overall, corporate insiders sharply reduced both their purchases and sales in their own companies in January 2013.  On the purchase side, insiders bought about 127.6 million shares in their own companies for their personal accounts in January 2013.  This number is down about 50% from December 2012 when it was 237.5 million shares.   For all of 2012, insiders had averaged out about 189 million share purchases per month.  Some recent commentators have pointed to this sharp decline in insider purchases and started sounding alarm bells.[1]

However, before you conclude that decline in insider buying portends ill for the future stock returns, take a look at insider selling.  In January 2013, insiders sold about 241 million shares.  However, this number is also down about 75% from a December 2012 selling level of 885.5 million shares.  For all of 2012, insiders averaged about 582 million shares sold per month.  

Both insider buying and insider selling are down.  A good indicator of insider sentiment is the buyers-to-total-traders ratio.  The historical average value of the insider buyers to total traders is around 30%.  Above this level, I consider insider activity to be bullish.  Below this level, I consider insider activity to be bearish. 

In January 2013, insider index has averaged 29.6%, down from 29.8% in December 2012.  For calendar year 2012, insider sentiment averaged around 34%.   Clearly, insiders are gradually becoming less bullish.  While it is too early to worry about downright pessimism, it appears that insiders are significantly less bullish than they were just six months or a year ago. Once again, this is consistent with the interpretation that recent sharp increases in stock prices means that stocks are no longer the bargain they were a year ago. 

 Looking at various market segments, in January 2012, insiders still are bullish in small cap stocks, and somewhat bearish about mid-caps and large caps.  I define small caps to have a maximum market cap of $500 million, mid-cap between $500 million to $5 billion and large-caps greater than $5 billion.  Similarly, insiders are still optimistic about NASDAQ-listed stocks and less optimistic about NYSE listed stocks.  Given that small-cap stocks have recently achieved new historical highs, insiders appear to believe that there is still upside to the small caps.

Looking at industry segments, a few sectors do stand out.  There are still a few areas that insiders are bullish.  Insiders are significantly bullish on the energy sector.  Other areas insiders like are health care and materials.  Insiders are staying away from the telecom sector. 

As for individual names, insiders are buyers in Abraxas Petroleum, Aegerion Pharma, Alcoa, Brown-Forman, Ceres, and CVK Refining to name a few.  Insider selling has recently increased in both Zynga and Vonage.



[1] Sucker Alert? Insider Selling Surges After Dow 14,000, CNBC, February 5, 2013, see  http://finance.yahoo.com/news/sucker-alert-insider-selling-surges-181720960.html

 

Posted-In: Markets Trading Ideas

 

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