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INSIDER TRADING


August Insider Update

09/09/04 11:57:34 AM
by Matt Blackman

Insider selling increased in August but so did buying. In fact, August buying was the second highest in two years.

Security:   NA
Position:   N/A

Insiders increased their buying 76% from July to $178 million, exceeding the 5-year historic average of $160 million in share purchases, according to the latest client advisory from the Insider Research team at Thomson Financial. It noted that there were substantial increases in the number of executives and companies buying their own stock.

Figure 1 Ratio of insider selling to buying between November 2002 and August 2004. Data provided by http://www.thomsonfinancial.com
 
The ratio of insider sells to buys decreased slightly in August from $18.11 to $17.13 for the fourth month in neutral territory in the last five months. A sell/buy ratio reading of over $20 is considered bearish and under $12 bullish. The last time the indicator was in bullish territory was March 2003. Insider selling also increased 71% to $3 billion in August, which was not unexpected and in line with 5-year historic average of $2.8 billion in share sales.

Large cap buying in August was the strongest of any month in the past year. Large caps experiencing insider buying, according to the report, included Wells Fargo (WFC), Sun Microsystems (SUNW) and Tenet Healthcare (THC). Sectors enjoying some of the strongest buying included finance in which share purchases doubled and technology, which saw the highest executive level of buying in two years. Other companies experiencing insider buying included Earthlink (ELNK), Marvel Enterprises (MVL), Activision (ATVI), Invitrogen (IVGN) and M&T Bank (MTB).

It is important to note that the Semiconductor Index has continued to drop and traders should be cautious of investing before technology stocks, especially semis, show signs of reversing.

In his latest client insider newsletter, George Muzea confirmed the neutral insider position and commented that executives have decreased their buying at the 10,200 [Dow] area, indicating that with the exception of some downtrodden stocks, few investors are finding value at current prices.

Suggested Reading:

Blackman, Matt [2004] July Insider Update, August 9
http://technical.traders.com/tradersonline/display.asp?art=1884

Blackman, Matt [2004] Insiders Continue to Trade Shares for Dollars, April 13
http://technical.traders.com/tradersonline/display.asp?art=1656

Blackman, Matt [2004] Insiders Aren't Buying the Bull, March 11, http://technical.traders.com/tradersonline/display.asp?art=1577

Muzea, George [2004] The "Magic T" Newsletter, August 29

Muzea, George [2003] The Vital Few vs. The Trivial Many, Literary Press
http://www.vitalfew.info/

Seyhun, Nejat H. [2000] "Investment Intelligence from Insider Trading," MIT Press

Thomson Financial [2004], Insider Buying Hits Second Highest Monthly Level in Two Years, September 3, Thomson.



Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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