By Michael Brush, MarketWatch
Those in the know are now saying it’s time to buy this pullback.
Last week, insiders — the ones with the front-row seats on business — bought more of their company shares than they sold by a ratio of 1.25. That’s unusual. Typically, they sell about twice as much as they buy. This means the buy/sell ratio is normally more in the 0.5 range. These numbers come from Vickers Stock Research.
A long-term eight-week buy/sell ratio Vickers uses to track insider activity at New York Stock Exchange and American Stock Exchange companies has also turned bullish.
The bullish insider tone lines up the golden trifecta of signals I look for to make overall market calls in my stock newsletter, Brush Up on Stocks .
To identify a bottom in a selloff, or get close, I like to see marked negativity among those who are less in the know, meaning 1. investors and 2. the media, and 3. clear bullishness among those in the know, or insiders.
• Investors: Various sentiment surveys and put/call ratios I track, along with the VIX /zigman2/quotes/210598281/delayed VIX -7.47% , now show that investors are pretty negative, with the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.60% losing as much as 10% since September. They are not at the extremes we see at the bottoms of bear markets. But they are close.
• The media: As a rule, I never watch financial news shows like CNBC because the risk-reward is unfavorable. A lot of times you won’t learn much, but there’s a big chance you might get drawn into dangerous groupthink — the ultimate hazard for returns.
Recently, though, I’ve been checking out CNBC clips, particularly the free-for-all panel discussions. Commentators seemed downright fearful and a bit panicky in the market selloff late last week. This is a bullish sign, in the contrarian sense.
They’ve regrouped and calmed down a bit this week. We may need to see more negativity from the press to mark a precise bottom. But we are close. A clear sign would be market rout stories on the front pages. Journalists offer a great read on sentiment because they are good at understanding what’s on the mind of the public. They share those insights through story lineups.
The bottom line: While we don’t see quite enough negativity from investors and the financial press, we are close enough. Especially now that insiders have turned bullish. So I began telling my subscribers this week to finally get more aggressive in buying this pullback, after suggesting they raise cash through much of the summer and early fall. We may still need to see the “big puke moment” to clear the negativity. But it seems like we are nearing the bottom here, and insiders are confirming this.
Here’s what to buy:
Elon Musk may seem like a crazy man at times, but he’s also crazy about his company’s stock. After he bought $9.8 million in early May, I suggested Tesla /zigman2/quotes/203558040/composite TSLA +5.04% in my stock letter at $302. It’s been a wild ride since then, with decent gains along the way.
He put another $25 million into the stock at $345 in June. This week Musk confirmed his confidence in his company by purchasing another $10 million worth at $335.