Do not look to insiders for direction

Each week Barron's (paid subscription required) has a look at what the insiders are buying and selling.   Today, the update states that insiders are selling energy shares.  The on-line piece cites that in the month of July for each insider buyer of shares there are ten who have sold positions.  They have quotes from two analysts that see the recent selling as negative for the sector in the near-term and that the selling reflects the volatility in commodity prices we have seen this month.   

According to a July 5th update, inside energy buyers outpaced sellers in June.  Though the analyst quoted did say that the volatility in commodity makes him wary in the near-term, he did believe that the buying supported a long term bullish outlook.   

 

Comment:  We always found it hard to extrapolate a
great deal from insider buying and selling because without knowing the motive
the action holds less meaning.  Buying is easier to see as a bullish
signal because it is voluntary in action.  Selling can occur for a host of
reasons:  warrants expiring, buying a house, paying for college,
diversification (see Enron) and not to be ignored a bearish outlook.  The
problem lies in the lack of transparency in motive. 

The flip-flop in updates over a two week time span illustrates that
concern.   It also illustrates one of the key characteristics of
energy equity investing:  Volatility will reign.   In
conjunction with the insider selling update Barron's
technical update also cites some near-term bearish data points.
The warning signs are reminiscent to those seen in March when energy fell about
16% over a six week period.  However, the article does believe (again)
that the long term picture is rather bright.

Crude
oil can pull back to as low as $50 a barrel without breaking a two-year trend
line and as low as $45 without breaking its major bull market trend line. The
energy ETF can fall as low as $42 over the next few weeks without endangering
its bull-market trend line, either.