Beating Buffett

A Perfect Short-Term Trading Indicator?

How good would it be if you have a better than 80% chance of being right on the general market direction? Regular subscribers to Barrons get just that type of information each week as one part of their Insider Trading column features.

Thomson Reuters provides Barrons with a unique chart showing the ratio of marketwide insider sells to insider buys. Company officials pretty much always sell more of their own company’s shares than they buy due. This is due to employee compensation which includes incentive stock options and restricted stock awards.

When insider sells drop to under 12x their buys it’s considered bullish. Selling ratios above 20x purchase levels indicates possibly overvalued stock prices. The further these ratios are broached in either direction the stronger the conviction.

Over the past 12-months these signals have been especially valuable as you will see clearly from the supporting graphics. You’ll see how the market calls from this signal correlate with subsequent action the the S & P 500. Buy and sell ranges are always approximate rather than pinpoint. They have proven to be excellent guides which leave traders time to act. That is much more useful than technical tools which only trigger after moves have already occurred.

I’ve been effective utilizing this fine indicator for many years. Few non-fundamental timing tools have proven to be as valuable as this one.

After Friday’s almost 300 point DJIA surge the indicator is still borderline bullish.

Dr. Paul Price

RealMoneyPro@TheStreet.com

June 30, 2012

Great News for Housing?

Many headlines ran yesterday trumpteting that Housing was on the rise and making a big rebound. While the April numbers were slightly better than those of the previous month they are still near their 2008-09 recessionary low points.

I wouldn’t get too excited and be calling a true bottom just yet.

Don’t fall prey to mass hysteria in your buy and sell decisions. A quick glance at the charts below says more about this than words can convey. When investors panic they tend to dump right near cyclical troughs.

It’s not an exact correlation but is quite statistically significant. Here are highlights of eight recent “get me out” periods from the past three years. Past performance is no guarantee of future performance but it is the best guide we have to go on.

You sometimes see false bottoms followed by lower lows. Even then you are typically mere months away from the final nadir. Other times the panic lows are one-shot affairs. All but the most short-term traders should be scaling into positions rather than selling into weakness.