What the insiders are buying right now (IWM)
The Russell 2000 proxy ETF (NYSE: IWM) has pushed 6.8 percent lower since its closing high back on April 29th. And according to InsiderScore, the world’s leading insider trading, institutional ownership and stock buyback research and analytics firm, corporate insiders have been consistently selling shares since the correction began.
However, as the correction progresses, corporate insiders, particularly insiders of small cap stocks are buying more of their own stock. This is not out of the ordinary to see an increase in buying during a market correction, but not to this degree.
InsiderScore calculates a sentiment level for insiders of small cap stocks and as it stands “the score” has just pushed into bullish territory.
Check out the charts below from SentimenTrader.com, another valuable site for sentiment related research. As you can see from the chart below, buying among corporate insiders for the broader market recently entered bullish territory.
Jason has highlighted every reading above 2 since 2004. Other than November 2007 and May 2010 extremes, the InsiderScore Russell 2000 Sentiment Level has been a fairly accurate gauge at forecasting market inflection points.
According to Mr. Goepfert, even with the two failures, “during the next six months the median maximum decline was -3.5% while the median maximum rally was +11.8%”.
Since I called a top back on April 25th, my message has remained consistent – it’s a stock picker’s market.
In periods of time when stocks have been rising without fail, investors can do very well by investing in index funds through Exchange Traded Funds (ETFs) or mutual funds with exposure to certain asset classes. Investors who have owned small-caps through an ETF like the iShares Russell 2000 (NYSE: IWM) have reaped significant profits in the past two years.
However, with small caps trading at rich valuations now isn't the time to be buying an index fund. Instead, times like this point to the importance of stock picking and finding the individual small cap stocks that are hidden gems.
Now is the opportune time to carefully analyze individual small cap stocks in search of the best opportunities. If a pullback for small caps occurs, you may find your favorite investments trading at a discount, thus presenting a buying opportunity. As always though, with small cap stocks it's always best to focus on the quality and valuation of the individual investment.
If you're interested, I recently added a small cap technology company that is helping to revolutionize the oil industry. If you're interested, you can take a risk-free look at this research by heading over to SmallCapInvestorPRO.com.
