Whenever the markets begin to look toppy like they do now, I turn to short-term indicators to help me figure out "what's next" for the markets. It complements the fundamental analysis I rely on for the big picture.
Some people - lots of people, in fact - will tell you that this is a wasted exercise. Predicting the markets, they say, can't be done. I disagree if for no other reason that if that were true, guys like Jim Rogers, Warren Buffett, Steve Jobs, Richard Branson and Carlos Slim wouldn't be the legends they are today.
As I see it, learning to "read" the markets and anticipate its twists and turns is absolutely possible.
But let me qualify my statement. My goal is not necessarily to be "right."
Any savvy trader will tell you the objective is to get enough of a read - right or wrong -so that you can use the appropriate tactics needed to be profitable.
For example, the markets have one heckuva run and flirted with new highs in recent trading. To the casual investor, it appears that things are good because the economy is gradually recovering.
Yet, there have been nine insider sales for every single buyer among NYSE stocks in the past week, according to the Vickers Weekly Insider Report as reported by CNBC.
Clearly something doesn't match up, especially when you consider that the last time insiders sold this aggressively was in early 2012, right before the S&P 500 took a 10% header.
As my colleague, Bill Patalon, noted recently in his Private Briefing column, there are all kinds of legitimate reasons insiders sell their shares. They range from simply taking profits to portfolio reallocations, estate planning, raising cash to pay the ginormous taxes that come with success, even financing dream homes. So there could be something else at work here. But I don't think so.
What concerns me is that insiders, particularly when you're talking about senior management types, typically know a lot more than the average investor. Further, they tend to have a consistent view of very specific longer term market conditions and, more importantly, its earnings potential.
They are, as Enis Taner of RiskReversal.com noted to CNBC, "usually right over a long period of time."What Insiders Sales Say About the Market
My take is that the insiders are spot on. I also believe that the fact that they've chosen to sell aggressively right now suggests a looming correction is in the works. Here's why:
Figure 1: Fitz-Gerald Research Publications, Yahoofinance.com
My fear is that we've already reached the point where there is so much money sloshing around that the next "big thing" from Team Fed may actually be the straw that breaks the camel's back. But that's another story for another time.
Thank goodness protection is cheap at the moment. Assuming, of course, insiders know something "we" don't.Related Articles and News: