Insider Trading Activity Somewhat Positive

Research suggests that insider share purchases provide clues to a company’s prospects. The insider sell-to-buy ratio is typically 2.5. When the ratio is higher, markets tend to move down. When the ratio is lower, markets tend to rise.

Referring to the March 2009 market bottom:

That ratio dropped to as low as 0.45 to 1 in the weeks just before the bear market ended. That was the ratio’s lowest level since December 1990, at the beginning of the great ’90s bull market.

So what is the data telling us about today’s correction/volatility:

…in recent weeks, insiders have been cutting back on sales and increasing their purchases. As a result, the sell-to-buy ratio has fallen back to 3.52 to 1, according to Vickers.

This figure higher than the long-term average, but the direction of the trend suggests insiders are buying into the correction. If history repeats, this may be positive for the markets.

Source: New York Times