We saw a big surge in insider activity last week and as is often the case these days, most of that activity was concentrated in energy companies and regional banks. To put things in perspective, during the course of the week, we reported on insider buying in nearly 150 companies in our daily event-driven monitors.
Given the increase in insider buying, I was curious to see if the 13 week moving average of the Insider Sell/Buy ratio provided any signals about the direction of the broader market. To reiterate, the Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week.
I used a 13 week moving average because we often see insider activity concentrated in a period of 5 to 6 weeks each quarter. This is when insiders are outside of company-imposed quiet periods and can trade more opportunistically. The 13 week moving average smooths out this seasonal impact.
As you can see from the chart above, the sell/buy ratio dropped sharply during the early weeks of the COVID-19 pandemic and provided a positive signal in March 2020. It provided a negative signal in late 2021, which translated to an excellent time to get out of stocks and especially tech stocks. The positive signals it provided multiple times in 2022 were premature. The negative signal it once again provided in early 2024 was followed by market weakness at the start of 2024 but that weakness did not persist for long.
Looking at this data, I would be cautious of overall market conditions if this ratio spikes above 35 and more optimistic if it drops below 10. The current level doesn’t provide a strong signal in either direction. It is worth mentioning that I don’t use a single metric like the Insider Sell/Buy ratio to make allocation decisions and it is part of a mosaic of indicators I look at.