Profound pessimism in the markets and extremely oversold conditions are two powerful signs that it's time to accumulate the most promising, solidly capitalized stocks and under-valued natural resources.
Someday we will arrive at that "golden moment", but right now most everything is priced for optimum conditions or even overpriced. The current correction looks like it has a ways to go, but will it go far enough to create the ideal buying condition?
Probably not for awhile, and when that big, emotionally painful "bargain-basement sale" happens most traders and investors will not recognize it. That's the way it was in March 2009, May through July of 2010, and that's the way it'll happen next.
Even small cap stocks have soared. Below is a one-year price chart of a company named Fortinet Inc (NASDAQ:FTNT), and it is a metaphor for the major stock averages and how they've performed since the lows of July 2, 2010. It helps illustrate how far many hundreds of stocks and commodities have risen in less than 12 months.
Yet there is one dependable buy signal that goes on during bull markets as well as bear markets. Along with that longed-for signal, there are also plenty of false signals right now. But the one I've been researching is, just like the Coca-Cola (NYSE:KO) commercial used to say, "the real thing".
That buy signal is when company directors and officers, a.k.a. "insiders" are buying stock shares with their own money at current prices...right here, right now.
These "insiders" have loads of information that "we the people" don't have access to. They know the direction of quarterly sales, net profits, new products, services or patents that are pending, litigation that might be soon resolved, key employees who are being hired or replaced, and dozens of other factors that we "outsiders" couldn't possibly know of.
The government requires them to file a form 4 with the SEC notifying the public of what they are buying. Thus we can piggy-back on their legal, insider buys and have a good chance of benefiting from the same investments and for the same reasons these insiders are buying the stock.
We want to see the amount of insider buying that's going on. What is the track record of insiders who are buying and how have they fared in the past? Did they buy low and sell high? Do they sit on the board of other companies where they've also bought low and sold high?
Hedge fund managers and institutional fund managers watch the insider buying filings closely, because they know that the insiders do have an unfair advantage over the outsiders when it comes to what's coming down the pike.
So if you can get access to those Form 4 filings as fast as possible (and I'm told that there are very expensive services that can be subscribed to that give real-time reporting about these Form 4 filings) and you're able to act quickly before the "herd" finds out, you may be able to make some profitable shorter-term trades right along with the insiders who are accumulating.
Insiders at companies like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) have been doing quite well for themselves in past years as they quietly bought "before the news broke" or "before the bell tolled".
The opposite can be true as well. I've been watching the selling by insiders at EMC over the past 6 months. They've sold over 4.7 million shares, and I've had to wonder what they know they we don't. After EMC shares correct, or, after the insiders begin doing some major buying, that would be the time I'd be interested in accumulating these shares.
Yes, I like the fact that EMC owns a large % of VMware (NYSE:VMW), but I'm much more concerned that the company insiders have been huge net sellers these past 6 months.
There are a few good trading services that track insider buying and report in real-time what's been going on. Look for the services with the best track record and that have the highest number of "happy campers" who have subscribed and have been nicely rewarded.
One service I subscribe to and have profited from recently reported that Accuride Corp. (NYSE:ACW) has experienced some enthusiastic insider buying of late. I did some research myself and found that indeed this has been going on. In fact, insiders own over 47% of the outstanding shares of the company. I jumped on board with a sell limit order to protect me.
Be careful who you listen to, do your own due diligence, and I'd recommend you go with a trading service that can help you spot these "diamonds in the rough" before the rest of the masses do.
I can't stress it enough; be very careful and find out why insiders are buying before you do any of this kind of investing yourself. Remember, just because I or anyone else is buying any investment does not imply in any way it is an investment suitable for you.
Hopefully there will be many comments to this article so you can learn more about the pros and cons of buying (or selling) legally along with the "insiders".
Disclosure: I am long FTNT, ACW.