A study by University of Illinois professor Josef Lakonishok and his student Inmoo Lee shows that insider purchases generate more than 7%/year in excess returns above index funds when there are several insiders purchasing.
So what are the stocks in question? And what does our PatternDNA application available in the Seeking Alpha appstore suggest may be their short and long term future?
PatternDNA looks at the past 5-days of trading action and based on historical testing, offers a projection forward over the next 5-days. PatternDNA also shows the cumulative (annualized for default) return for the pattern based on a defined Target&Stop strategy. The Target&Stop strategy uses an initial Target of 15% with an opening Stop of 10%. Once the initial Target is reached the Stop adjusts to 5% from that price and updates on every subsequent 10% gain until the overall Profit Target of 25% is reached. PatternDNA uses patent pending technology to assess the strength of the match and for this purpose the Strong Match level is used. In some cases, the Pattern will show no historic match (other than the current Pattern) so there will be no-data.
The seven stocks in question were: Bank of America (NYSE:BAC), Versar (NYSEMKT:VSR), Rimage (RIMG), Harris Interactive (NASDAQ:HPOL), Jamba (NASDAQ:JMBA), Citigroup (NYSE:C) and Buckeye Technologies Inc (NYSE:BKI). What is the technical outlook for these stocks?
||No. of Patterns||1-day % Win||2-day % Win
||5-day % Win||Target&Stop % Return|
There was a considerable range in the Patterns found over the past 5 days. Rimage (RIMG) had the most general pattern with a modest bullish return over the 5 days (i.e. based on a buy at the open following the pattern and holding to the respective close) but a strong return when traded using the earlier Target&Stop. Harris Interactive (HPOL) had a rare trading pattern and its return must be taken with a grain of salt given the low number of historic matches (from a test-bed of 18 leading U.S.) stocks.
The outlook for Bank of America is negative over the next five days and for its longer term outlook when the Pattern is traded with a Target&Stop. It's not much different for Citigroup on a day-to-day basis, although the Target&Stop return is nothing as bad. Other than Rimage (RIMG), there was only a midly positive outlook although the next couple of days give an edge to bears.
Sit it out and reassess Patterns two-days later may be the order of the day?