The Purest Bullish Indicator in Existence

Lou Basenese

Wednesday, July 27, 2022

All eyes are on tech this week, as the mega-cap titans of industry report quarterly earnings.

So far so good, as both Microsoft (MSFT) and Google parent Alphabet (GOOG) put up strong growth, and more importantly, management shared a confident outlook.

As the Financial Times detailed, “The upbeat comments from the tech sector contrasted sharply with results yesterday from consumer companies, which warned of rising prices and falling demand.”

Indeed, tech is a bright spot in a difficult global economy! But we shouldn’t be the least bit surprised by the divergence.

As I shared recently, the ratio of tech insiders buying stock compared to selling stock recently hit a high for the past decade.

Here’s why that’s so significant, and then I’ll share two tech companies with significant insider buying that warrant your immediate consideration…

Only One

One of the most successful money managers ever, Peter Lynch of Fidelity’s Magellan fund, famously observed, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”

And he’s dead right, as countless studies show insider trading activity reliably predicts shifts in market and sector sentiment, as well as individual stock prices.

Logically it makes sense, too. After all, no one knows better what’s ahead for a public company than executives and directors with insider knowledge.

Why bring this up? Because the recent sell-off in the markets and tech stocks in particular prompted insiders to step up and buy way more shares than they were selling for the first time since the market plunged in March 2020.

Take a look:

(click image to enlarge)

The fact that all this buying is happening while the tech sector’s been sucking wind means a turning point is dead ahead.

Of course, if we wait for it to definitely hit, we’ll miss out on profits, which we don’t want to do.

With that in mind, here are two tech companies with significant insider buying:

  • Kyndryl Holdings (NYSE:KD), a leading IT cloud services company, which I previously highlighted as a major growth trend. The CEO recently increased his stake by 11%, and his purchases were followed by two other insiders.
  • Kar Auction Services (KAR), an operator of a secondary car auction market. The CEO increased his stake by 20% in May.

Furthermore, the situation for the two companies above gets even better, as both recently instituted a stock buyback program. So there promises to be a steady bid underpinning shares (i.e., limited downside) for the foreseeable future as these buyback programs are put to work.

If you prefer to hunt for your own insider buying opportunities, you can track daily activity here.

Just don’t wait too long to follow insiders’ lead — or it’ll be too late.

Ahead of the tape,
Lou Basenese
Lou Basenese


Tags: Bull Market Big Tech

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