What The Latest Insider Deals Are Suggesting About The U.S. Stock Market

What The Latest Insider Deals Are Suggesting About The U.S.


Summary

  • Analyzing insider deals helps investors estimate the near-term trend and figure out outperformers and underperformers.
  • The latest insider deals data suggest more promoters are selling, while only a few are buying.
  • This indicates that the market may be overpriced.

Outsiders often have an insight that an insider doesn’t quite have. – Diane Abbott

Company employees and owners know what’s going on inside their organization and what the immediate future could hold. Many of these folks react to the inside developments and buy or sell their stock, depending on which way the wind is blowing. I usually check insider activity daily to find out about trends, and on March 29, I had tweeted that insiders were tanking up on stocks, taking advantage of the market crash.

Tweet By Michael Gayed

The data-reading proved correct when the market melted up suddenly and sharply. Well, that was then, and the market’s dynamics have changed. To estimate the market’s current direction, we need to dig into what insider activity is happening these days.

Latest Insider Activity

As the market continues to melt up, owners of many small-cap companies have turned wary and have started offloading. Only a handful of promoters are buying. Here’s what the data on June 19, 2020, look like:

Small Cap Companies

Five significant insider sells spotted on June 18 and 19, 2020, were:

1. Stitch Fix (NASDAQ:)’s (SFIX) 10% owner sold 117,644 shares at $24.66. The disposal comes despite Canaccord Genuity pointing to an upside.

2. Floor & Decor Holdings (NYSE:) CEO and EVP together sold out about 161,500 shares at approximately $58.6. It could be because certain stockholders are offering about 5 million shares for sale.

3. US Auto Parts Network (NASDAQ:) 10% owner sold 623,551 shares at $8.86. The company just beat its guidance, and therefore, this sale could be because it expects the COVID-19 disruption to prolong.

4. The Scotts Miracle-Gro Company (NYSE:)’s 10% owners together sold about 135,000 shares at $132.68. The sale comes despite the company hiking its guidance and winning praise from analysts.

5. Altice USA’s (NYSE:) 10% owner sold 729,869 shares at $24.63 even though JPMorgan stayed bullish on cable companies and Nomura started developing interest in them.

There were a couple of significant buys amongst all the selling:

1. B2B sales-enabler ServiceSource International (NASDAQ:) picked up 250,000 shares at $1.52. There’s no recent noteworthy news. Therefore, there may be something brewing that we don’t know about. Caution is advised as SREV is a penny stock.

2. CNA Financial’s (NYSE:) 10% owner bought 99,367 shares at $32.80, maybe because the stock has been badly beaten down.

Most owners, as you can see from the data, are selling these days. Therefore, the market outlook in the near term seems bearish. However, know that markets are irrational and any upward movement in heavyweights can change the sentiment in no time.

Do you folks monitor insider deals regularly? You should, because the data can clue you on to both performing and non-performing stocks, and the overall trend. Here is a guide that can help:

A Guide to Analyzing Insider Deals

  • 1. Every evening, check insider deals data published on Morningstar or Guru Focus, or any other website of your choice.
  • 2. Ignore the small deals and focus on the larger deals.
  • 3. Many company owners buying at a time when the market is down suggests that a bullish trend may emerge. Likewise, owners holing out when the market is at a high indicates they are not confident of the market levels or maybe they feel that their shares are overpriced.
  • 4. Always check stock-related news after narrowing down your picks. If there is no news, it implies something is up that we are not aware of. If there is news, then chances are that it has already been accounted for in the price.
  • 5. If there are contra entries – buying and selling by promoters on the same day, then avoid that stock unless there’s some policy action expected in that industry, or if a new stock offering is on the cards.
  • 6. After filtering your picks, check each pick’s financials before making any investment decision.

Summing Up

The latest insider deals indicate that more company owners are selling than buying. Such selling occurs when the markets are overheated. When markets crash, the reverse happens – most promoters buy stocks. Even on regular days when the market moves in a tight range, the number of promoters buying typically exceeds the number of promoters selling stocks. For longer term bulls – that ain’t good.





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Michael Gayed


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