Net Insider Trading Holding Strong

Last month, I posted that net insider trading transactions had turned positive for the first time since May. Updating this for the week ending November 27, it appears that optimistic insiders again outnumber pessimistic ones.

Sabrient's research team compiles a wide variety of useful data for internal reference and for use within our quantitative models. One of the things that we track is Net Insider Transactions. We simply add up the number of unique insider purchases during the week minus the number of insider sales, as reported to the SEC on Form 4 - open market transactions.

After a brief dip during the month, insider buyers have returned, resulting in positive net Insider Buying. Below is a chart illustrating this point. 

Again, Buys represent the open market insider transactions during the given week that increase an insider's net holdings; while Sells are open market insider transactions during the given week that decrease an insider's net holdings. We are NOT measuring the dollar size of those transactions. (Note: The black line shows the overall market performance.)

For the full year, this metric was the most strongly positive the week ending March 13 (remember the big bounce from the abyss that week?) when it clocked in at 840 buyers vs. 189 sellers for a net +651. In contrast, the week ending 11/27 saw 264 buyers and 247 sellers for a net +17. Although a one-week snapshot is not highly instructive, the upward trend since mid-September is notable.

Although the market might be somewhat extended on a technical basis, this is a positive sentiment indicator with respect to near-term market performance, and indeed November was quite strong, and so far December has shown a desire to rally, as well.

Keep in mind, insiders sell for a lot of reasons other than fear, including diversification, retirement, paying for college expenses or a new vacation home, etc. But they generally only buy on the open market for one reason -- i.e., they think their stock is undervalued relative to growth prospects and should go up.

This is why looking solely at the net of total dollars traded can be misleading. A few large sellers can skew the totals. Sabrient prefers to look at each buyer or seller as essentially casting a "vote" on their company stock, and voters remain positive.