Welcome to edition sixty two of Insider Weekends. Insider buying increased significantly with insiders purchasing $225.6 million of their stock last week when compared to $69.8 million in the week prior. This is the highest level of insider purchasing we have seen since we started tracking insider activity last April. Selling on the other hand decreased with insiders selling $287.3 million worth of stock compared to $1.25 billion in the week prior.
We first highlighted this heightened level of insider purchasing to subscribers of Insider Trade Reports more than a week ago and several media outlets picked up on it later in the week, including Time.com that managedto get its hand on one of my daily reports and published the article “Insider Trading: Look Who’s Buying on Wall Street“. There have also been several articles claiming that insider activity in not necessarily a good predictor of future performance and I will be the first one to admit that not all insider purchases are created equal. Critics point to November 2008 when insider purchasing peaked for the year 2008 but the market as a whole continued to decline until March 2009. In retrospect, November 2008 was a great time to purchase equities and we highlighted just how cheap certain small cap stocks such as Towerstream (TWER) had become in a post titled "Towerstream Trading Below Cash".
Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped down to 1.27. In other words, insiders sold nearly the same amount of stock as they purchased. The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 17.9. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.
I have adjusted the chart below to show the correlation of the Sell/Buy ratio with the S&P 500 from the start of the year. The huge spike in the ratio last Fall, which was driven by fear of potential changes to capital gains taxes in 2011, made the recent movements harder to discern.
click on image to enlarge
Insider Sell Buy Ratio August 12, 2011
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