Insiders are selling BIG time into this rally
They are taking advantage of irrational market behavior to offload their stocks.
A thread looking at their track record 🧵
They are taking advantage of irrational market behavior to offload their stocks.
A thread looking at their track record 🧵
2/ The S&P 500 has just had a confirmed breakout above its macro downtrend line
Is this what everyone has been waiting for to signal the resumption of the bull run?
Let's look at the data
Is this what everyone has been waiting for to signal the resumption of the bull run?
Let's look at the data
3/ Insider transaction ratio is going through the roof
And has reached the highest level since 2022
And has reached the highest level since 2022
4/ Insiders consist of corporate insiders who have access to non-public information
But these insiders have to legally disclose their transactions
But these insiders have to legally disclose their transactions
5/ If insiders are selling, it likely means they know something that the average investor doesn't
Perhaps the company is weaker than what the market is currently pricing in, indicating there's rough times ahead for the company
Let's dive into some charts to see if that's true
Perhaps the company is weaker than what the market is currently pricing in, indicating there's rough times ahead for the company
Let's dive into some charts to see if that's true
6/ This chart shows how the S&P 500 has reacted to earnings-per-share (EPS) beats and misses
And the current dynamics being played out are very different from those seen since 2000
H/T @GavinSBaker
And the current dynamics being played out are very different from those seen since 2000
H/T @GavinSBaker
7/ Stocks that have reported EPS beats have reacted very poorly
Whereas companies that have missed their EPS target ended up moving higher
This suggests a very irrational type of earnings season
Whereas companies that have missed their EPS target ended up moving higher
This suggests a very irrational type of earnings season
8/ Usually, companies that report strong earnings outperform
Just like the dynamic seen during the bottom of the Financial Crisis
Just like the dynamic seen during the bottom of the Financial Crisis
9/ The companies that have reported poor earnings with a potential for further EPS weakening have been moving higher
And insiders are potentially taking this opportunity to offload part of their holdings
And insiders are potentially taking this opportunity to offload part of their holdings
10/ The previous 2 insider selling spikes occurred in
- March 2022
- August 2022
- March 2022
- August 2022
11/ Both of these instances correspond to the local tops in the market
12/ Systematically backtesting the insider transactions ratio for other years is tricky due to the lack of availability of data
But this chart shows the insider transaction ratio from 2015 from the same data set, which was quite a volatile period in the market
But this chart shows the insider transaction ratio from 2015 from the same data set, which was quite a volatile period in the market
13/ Let’s see how accurate insiders were during this period
The 3 occasions when insiders were selling were:
- January to May 2015
- July 2015
- October to November 2015
The 3 occasions when insiders were selling were:
- January to May 2015
- July 2015
- October to November 2015
14/ From Jan - May 2015, markets were climbing very gradually, eventually forming a top
15/ July 2015 was another local top in the market
Following this the S&P 500 saw a waterfall-type collapse
Following this the S&P 500 saw a waterfall-type collapse
16/ October and November 2015 was yet another local top in the market following a retracement
After which the stock market went into another capitulation type event
After which the stock market went into another capitulation type event
17/ This doesn’t mean that insiders will be able to time the tops in the market accurately on every occasion
But it does speak to the odds of them being on the right side of the trade more often than not
But it does speak to the odds of them being on the right side of the trade more often than not
18/ The probability of a recession based on the yield curve inversion is the highest it has been since 1981
Even though earnings have been strong this season, it’s only a matter of time before they begin contracting and the recession kicks in
Even though earnings have been strong this season, it’s only a matter of time before they begin contracting and the recession kicks in
19/ We were constructive on stocks in late 2022, given that
- Inflation was coming down
- Economic data showed lesser inflationary pressures
- The odds of a Fed pause was rising
- Inflation was coming down
- Economic data showed lesser inflationary pressures
- The odds of a Fed pause was rising
20/ But the Fed has been acting tough for a longer-than expected period of time
This has kept a lid on the PE ratios that have not been able to expand during this window of opportunity
This has kept a lid on the PE ratios that have not been able to expand during this window of opportunity
21/ The window of opportunity is now getting narrower with each passing day
And in the not-so-distant future, earnings are going to start contracting
And in the not-so-distant future, earnings are going to start contracting
22/ Declining earnings will eventually put downward pressure on the stock market even if the Fed pivots
Prime examples of such an occurrence were the 2000 and 2008 bear markets
Prime examples of such an occurrence were the 2000 and 2008 bear markets
23/ In the short-term though, it makes sense to be tactically long given the market is in a strong uptrend
Above 200-day moving average ✅
Above macro downtrend line resistance ✅
A rising channel ✅
Above key support of 3900 ✅
Above 200-day moving average ✅
Above macro downtrend line resistance ✅
A rising channel ✅
Above key support of 3900 ✅
24/ But with the macro environment deteriorating, it's important to stay vigilant and manage risk as the technicals could change on a dime
And that would be just the time to get defensive
And that would be just the time to get defensive
25/ How will the technicals develop in the short-term?
And how to position portfolios in this uncertain macro environment?
We provide data-driven macro insights, an actionable strategy and model portfolio to thousands of investors
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And how to position portfolios in this uncertain macro environment?
We provide data-driven macro insights, an actionable strategy and model portfolio to thousands of investors
Get your free trial at gameoftrades.net
26/ Thanks for reading!
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