The stock market has been experiencing some serious volatility lately, and it’s not looking like it will calm down anytime real soon.
And while the insiders on Wall Street normally know how to put themselves in the best positions to profit, it may be a different story while this bull market is bucking.
Should you let the company insiders guide you right now?
Just like pretty much anything else in the stock market, the insiders can be bullish, bearish, or relatively neutral. And we can find out which one the insiders are in general by looking at the insider transactions of the week.
Sales and purchases by company officers, directors, and 10% owners can show us what the insiders are thinking about the market right now, and whether or not buying is a good idea.
The Insider Formula
When we want to get a concrete number to tell us the mood of the insiders, we can look to the Insider Transactions Ratio, or ITR.
This ratio compares insider sales to insider buys, and gives us insight into how insiders are acting as a group.
For the ITR, readings under 12 to 1 are bullish, and readings over 20 to 1 are bearish, with the in between area serving as a sort of neutral zone.
Obviously, there are much more sales than purchases at any given time amongst insiders, considering there are many reasons to sell, but only that one reason to buy—they think the price of their respective companies’ stock will go up and they want to profit from it.
This ratio simply takes all insider selling, places it over all insider buying, and then looks at the result relative to previous results.
What the ITR is Saying Now
The ITR is currently sitting around 24, so the insiders are slightly bearish.
Now, the stock market has been very rocky lately, which I imagine has a lot to do with the insiders not being prepared to participate in heavy buying right now. However, this bearish number is nowhere near what it was in January of this year when it reached heights of 80!
The market volatility is certainly keeping the insiders on edge, but they haven’t completely given up on this market right now. In fact, a bearish number like this isn’t even out of the norm.
What we can take from this is that the insiders are doing what we should be doing—watching the market closely, not being reckless, and making sure that we are protected when the market finally does turn over.
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