Presidential Stock Market Direction

Presidential Stock Market Direction

The Presidential Stock Market Direction will be determined by who enters the White House. The “WHY  & HOW” is clear…

Presidential Stock Market DirectionThe recent MMT implies that a Presidential Stock Market Direction win by Biden will prove to be a complete joke. This would be much WORSE than Jimmy Carter who inspired the collapse of confidence in the dollar and government leading to the 1980 gold high. Capital will flee public assets and shift into private.

One the other hand, the worse of the economic crisis is external to the USA became many countries like Germany depend on selling to consumers outside their own country. The likelihood of a breakup of the EU and their idea of canceling currency and moving to perpetual bonds that would even wipe out pensions in Europe will push capital outside and into the US stock market.

Keep in mind that this is a Monetary Crisis Cycle intermixed with a Sovereign Debt Crisis and this entire coronavirus nonsense has so accelerated the debt crisis that now the politicians fear what will happen if they lift the restrictions on paying rents and mortgages.

The politicians around the world have responded in such an exaggerated manner to this virus that they will NEVER admit a mistake. Thus, they must oppress the people and hence we have entered into rising authoritarianism for the next decade.

Although the US Market will have a Slingshot move will occur no matter the Presidential Stock Market Direction, US retirement shares market will follow Europe, so be prepared. Stay close to your Wealth Preserver and Maximizer Signals to prevent a potential retirement account wipeout as this election will become the most violent in our countries history, and it will continue to escalate through 2032.

How The V Became W

How The V Became W

A possible change in near-term trend is likely as we approach this month in S&P 500 established back during March. Normally, this implies that the next turning point should be a reaction high. Technical resistance stands at 3393.76 and it will require a closing above this level to signal a breakout of the upside is going to unfold. Our technical support lies at 2271.03 which is still holding at this time. which is still holding at this time,” stated Livio S Nespoli of InterAnalyst.us.

Some caution is necessary since the last high 3393.52 was important given we did obtain three sell signals from that event established during February. Nonetheless, this market is trading below that high by more than 5 percent. Critical support still underlies this market at 2532.68 and a break of that level on a monthly closing basis would warn a further significant decline ahead becomes possible.

The market has consolidated for the past 2 Months and only 3393.54 would suggest a reversal in the immediate trend. The previous low of 219186 made during March only a break of 244749 on a Monthly closing basis would warn of a technical near-term change in trend.

With recent spikes in coronavirus cases and fluctuations in the economic data, the market seems to be stuck in a range amid elevated volatility and how the V became a W.

“For now, volatility and choppy markets remain our base case as an uneven economic recovery likely unfolds, the stock market was suggesting a V-shaped recovery, but the more likely scenario is rolling Ws with a sideways to downward bias.” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in a note.

The central bank unleashed another weapon in its arsenal this week, saying it will start buying individual corporate bonds. As comforting as it is to have the Fed’s support, the central bank can only do so much to ease investor fears.

“The Fed can’t prevent the volatility we’re seeing in stocks, and tt will likely take years for the economy to fully recover and there remain other uncertainties on the path ahead. As such, investors may continue to struggle with this mismatch between markets and the economy before seeing the case for new highs.”

Fed Chairman Jerome Powell reminded investors again in his semiannual testimony before Congress that “significant uncertainty remains about the timing and strength of the recovery.”

Where The Stock Market Goes Now?

Where The Stock Market Goes Now?

Where The Stock Market Goes Now…

With the Rails index back to all-time highs this seems like an especially appropriate question considering the fundamental data which is…. well, see for yourselves.

Consider where rail stocks are trading:

Do fundamentals justify this price? Here is the chart of total carload and intermodal traffic for 2018, 2019 and 2020.

Total U.S. carload traffic for the first five months of 2020 was 4,713,757 carloads, down 14.7 percent, or 815,413 carloads, from the same period last year; and 5,186,630 intermodal units, down 11.3 percent, or 661,703 containers and trailers, from last year.

And another way to see the unprecedented divergence tells us Where The Stock Market Goes Now:

U.S. railroads originated 740,171 carloads in May 2020, down 27.7 percent, or 282,965 carloads, from May 2019. U.S. railroads also originated 912,922 containers and trailers in May 2020, down 13 percent, or 136,241 units, from the same month last year. Combined U.S. carload and intermodal originations in May 2020 were 1,653,093, down 20.2 percent, or 419,206 carloads and intermodal units from May 2019.

In May 2020, one of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with May 2019. It was farm products excl. grain, up 324 carloads or 10.6 percent.

Meanwhile, commodities that saw declines in May 2020 from May 2019 were coal, down a record 127,201 carloads or 40.7%; Coal carloads are down 26.1% so far this year and have declined on an annual basis for 13 straight months.

In short, lowest rail traffic in years, and that was based on a trend even before the coronavirus, and yet rails stocks are at all time high.

Here is why:

As BMO rates strategist Ian Lyngen writes in “Jay’s Market, Just Trading in it“, a core theme of trading has been “the remarkable resilience of the equity market despite a shuttered economy, historic job losses and civil unrest across the US.”

So to get to the bottom of the question on every trader’s mind – just who is behind this rally – BMO sent out a poll to its clients where the first question showed a clear consensus for the driver behind the move; “73% offered the Fed as the inspiration behind the S&P 500’s impressive rally”, vastly more than those who cited labor market recovery/reopening optimism (6%) greater fiscal stimulus (5%), and progress on Covid-19 treatment (6%). And now that Powell owns this rally, he better not allow to reverse.

1. What is driving the swift recovery of equities?

a) Fed – 73%
b) Earnings Optimism – 0%
c) Labor market recovery – 6%
d) Further fiscal stimulus – 5%
e) Progress in treating/preventing Covid-19 – 6%
f) Other (please specify) – Reopening Optimism/ All of the Above/ Underinvestment

Less relevant to the market’s ramp but just as interesting in terms of what markets expect for the Fed to unveil next in the central bank’s creeping nationalization of capital markets, were responses to BMO’s second special question – when, or even if the FOMC will roll out yield curve control – which were not nearly as clear cut with a wide variety of opinions. 3-6 months was the most common answer with 33%, which points to the September, November, or December meeting as the most probable venue for the introduction of the new policy tool. Within ‘3 months’ or ‘not this cycle’ both took a roughly equal share as the second most frequent reply, so as Lyngen notes, “clearly investors are split on whether YCC needs to be deployed rapidly, or not at all given the state of the economy and recovery. 6-9 months and 9+ months both rounded out the replies with 14% and 12%, respectively.”

2. When will the Fed announce yield curve control?

a) Within 3 months – 21%
b) 3-6 months – 33%
c) 6-9 months – 14%
d) 9+ months – 12%
e) Not this cycle – 20%

Finally, an interesting snapshot on how investors respond to data is BMO’s question how respondents will react to tomorrow’s jobs report: In the event of a disappointment and a Treasury market rally, the clearest takeaway was a reluctance to take profits – only 25% would sell versus a 37% average and the lowest read since October 2019. Meanwhile 11% would join the rally and buy and 64% would do nothing compared to respective averages of 7% and 56%.

The other meaningful takeaway was a positive skew on the belly of the curve as 36% thought the next 15 bp in 5-year yields will be higher; well below the 45% average and matching last month’s figure as the lowest since November 2019.

Watch out below.  The International Monetary Crisis Is Starting, and you will witness precisely where the stock market goes now. Will you avoid the pain.

Velocity Of Financial Collapse

Velocity Of Financial Collapse

The velocity of money is like blood pressure. If it is too high or too low, it can be the Velocity Of Financial Collapse. Too high indicates inflationary pressures are building and/or the presence of speculative bubbles. If too low, deflationary pressures are growing, presaging a dangerous collapse. (eLearning)

The velocity of money reached its high during the 1990s dot.com bubble. After it collapsed in 2000, low-interest rates (2002-2007) fueled another bubble, the US property bubble, and when it collapsed in 2008, the velocity of money again plunged and never recovered.

Despite trillions spent by central banks after 2009, the velocity of money has continued to fall. Today, in 2020, the velocity of money reached an all-time low. In Q1, the average velocity was only 1.37. Q2 will be even lower.

To offset the historic plunge in demand caused by COVID-19, central banks resorted to money printing on an unprecedented scale. While the money printing will stave off starvation for the vast majority at the bottom of the economic food chain and ensure profits for the few still at the top; today’s money printing will turn fiat money into little more than food stamps and give the economic elites little incentive to do otherwise.

Despite central banks’ excessive money printing, hyperinflation may not occur, at least not immediately. In capitalist economies, because currencies are circulating coupons of credit and debt, when credit disappears, so, too, does “money”; and, today, money is disappearing into deflation’s waiting paw even faster than the Fed can print it.

The mandate of the Fed in 1913 was to create a system of debt-based fiat money that insured bankers profited, i.e. “made bank”, off all societal productivity, a never-before-seen form of economic parasitism.

Since that time, the Fed has done admirably with that mandate, given the problems they’ve had to deal with, e.g. a dangerously low gold/fiat ratio in the 1920s, the 1929 stock market crash, the 1930s collapse of world trade, the loss of gold reserves due to US overseas military spending, the serial collapse of bubbles beginning in 2000 triggering “the great recession of 2008, the amuse-bouche to what is now about to happen, 

America the Frog

AMERICA THE FROG

The frog is frozen still 

In water now so hot 

The water’s almost boiling 

But the frog knows it not

Quickly it must jump

To avoid a boiling death

The Fates themselves are watching

With collective bated breath

Will America survive?

Or will it now succumb

Its heritage abandoned

Its future now undone

By its own hand it’s threatened

Itself its great threat

The frog continues sitting still

In denial ignorant yet

The water’s getting hotter

The heat’s turned up to high

And it’s an even money bet

That the frog is gonna die

It is June 2020. The water’s boiling. The frog’s still in the pot. The velocity of financil collapse it closer than we might imagine.

Protect yourself now.

Market Support Is Deteriorating Fast

Market Support Is Deteriorating Fast

Market Support Is Deteriorating Fast as the market rally to date has been defined by the five largest stocks in the index. Via Goldman Sachs: 

Market Support Deteriorating

“Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index.”

Such also becomes problematic when corporations are issuing debt at a record pace to supplant liquidity needs to offset the economic crisis rather than repurchasing shares. It’s worth remembering that over the last decade, buybacks have accounted for almost 100% of net stock buying.

Market Support Deterioration 2

Overbought & Extended

Besides the supportive underpinnings, the technical backdrop is also conducive for corrective action in the short-term. Here is something that is more compelling:

“The number of stocks above the 50-dma is pushing record levels. Historically, whenever all of the overbought/sold indicators have aligned, along with the vast majority of stocks being above the 50-dma, corrections were close.”

Market Support Deterioration 3

Such doesn’t mean a “bear market” is about to start. It does suggest, at a minimum, a correction back to support is likely.

Markets Are Way Ahead Of Reality

Markets Are Way Ahead Of Reality

If the 35% surge in the S&P in the past two months seems too good to be true as even hard-core optimists like JPM’s Marko Kolanovic now admits, announcing that he is “dialing down” his optimism while Goldman sees little upside for stocks from here…

Markets Are Way Ahead Of Reality

… it’s probably because it is, as the latest Wall Street professional to join the chorus of naysayers and skeptics including such luminaries as David Tepper and Stanley Druckenmiller, claims.

In an interview with the Financial Times, Manolo Falco, Citigroup’s co-head of investment banking said that financial markets were “way ahead of reality” with tougher times to come, and is warning corporate clients that they should raise as much money as they could before the pandemic’s true cost is factored in by investors.

We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better,” Falco said, adding that “as the second quarter comes along and we start seeing the pain, and the collateral effects of that, we think this is going to be much tougher than it looks.”

manolo falco
Manolo Falco, Citigroup’s co-head of investment banking.

His comments came at the end of a week when stock markets largely rallied even as relations between the US and China just hit rock bottom, as riots were about to break out across the US which now has more than 40 million unemployed, and as millions of businesses around the world remained shut and economies lurched towards their worst recessions in memory.

“Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine,” Mr Falco said. “I don’t think it’s going to be that easy quite frankly” said the investment banking icon who just made Robinhood’s shitlist.

Investors’ optimism led investment grade companies to raise a record $1 trillion of debt in the first five months of the year, putting investment banks such as Citi on course for a surge in debt capital markets revenues in the second quarter of the year compared with 2019.

Citi is not the only bank to take advantage of the bond issuance feast, which has been explicitly backstopped by the Fed which as we learned last week has been busy buying up over a dozen ETFs.

Last week senior bankers predicted another strong quarter for trading. This was especially true at JPMorgan Chase, whose investment bank boss Daniel Pinto said trading revenues in the second quarter could be up as much as 50% compared with a year earlier.

Falco was more circumspect on the prospect of a wave of activist investment in the aftermath of the coronavirus crisis. Low asset prices can tempt activist investors to buy into companies on the cheap and then look for ways to make them more profitable, often by cutting costs and jobs, but mostly issuing more debt (although with corporate leverage now at even record-er levels than just 2 months ago it is unclear just who has the capacity for even more debt).

“You gotta be careful though because an activist can become very quickly a focus of governments if they really step in too hard at a time when people, what they want is to protect employment and to actually get things going in the economy,” Falco said. “We’ve got to be careful because in some cases . . . maybe those [investments] are at the wrong time and could create a lot of anger.”

We doubt that: in fact, if activist investors step up and end up causing millions more to be fired, it will simply mean that the government’s free handouts will have to be extended even further, Congress will have to pass even more stimulus bills, and the Fed will have to monetize even more debt bringing us that much closer to the period of runaway inflation so eagerly sought by the Federal Reserve.

In other words, more layoffs mean win, win, wins for everyone, except those who still believe in working hard and saving, of course.

Has The U.S. Economy Plunged Into A Depression?

Has The U.S. Economy Plunged Into A Depression?

“Face reality, and that means admitting that “the U.S. economy has plunged into a depression.”

This is already the worst economic downturn that America has experienced since the Great Depression of the 1930s, and we are right in the middle of the largest spike in unemployment in all of U.S. history by a very wide margin.

Of course, it was fear of COVID-19 that burst our economic bubble, and fear of this virus is going to be with us for a very long time to come.  So we need to brace ourselves for an extended economic crisis, and at this point, even Time Magazine is openly referring to this new downturn as an “economic depression”.

Needless to say, there will be a tremendous amount of debate about how deep it will eventually become, but everyone should be able to agree that our nation hasn’t seen anything like this since before World War II.

In order to prove my point, let me share the following 10 numbers with you…

#1 According to a study that was just released by the National Bureau of Economic Research, more than 100,000 U.S. businesses have already permanently shut down during this pandemic, and that represents millions of jobs that are never coming back.

#2 The Federal Reserve Bank of Atlanta is now projecting that U.S. GDP will shrink by 42.8 percent during the second quarter…

“A new GDP forecast from the Federal Reserve Bank of Atlanta for the three months through June estimates an unprecedented drop of 42.8 percent. The bank describes the data as a “nowcast” or real-time, compared with the official government report of GDP, which is dated. The first-quarter preliminary data, which showed a 4.8 percent dip, included a limited period of impact from COVID-19.”

#3 On Friday we learned that U.S. retail sales were down 16.4 percent during the month of April, and that is a new all-time record.

#4 U.S. factory output was down 13.7 percent last month, and that was the worst number ever recorded for that category.

#5 U.S. industrial production fell 11.2 percent last month, and that represented the worst number in 101 years.

#6 On Thursday, we learned that the number of Americans that have filed initial claims for unemployment benefits during this pandemic has risen by another 2.9 million, and that brings the grand total for this entire crisis to 36.5 million.  To put that number in perspective, at the lowest point of the Great Depression of the 1930s only about 15 million Americans were unemployed.

#7 According to the Federal Reserve Bank of Chicago, the real rate of unemployment in the U.S. is now 30.7 percent.

#8 According to a survey Fed officials just conducted, almost 40 percent of Americans with a household income of less than $40,000 a year say that they have lost a job during this crisis.

#9 One study has concluded that 42 percent of the job losses during this pandemic will end up being permanent.

#10 According to a professor of economics at Columbia University, the U.S. homeless population could rise by up to 45 percent by the end of this calendar year.

We have never seen economic numbers this horrifying, and more awful economic numbers are coming in the months ahead.

At this point, things are so bad that even Fed Chair Jerome Powell is openly admitting that he doesn’t really know how long this new economic downturn will last…

“This economy will recover…We’ll get through this. It may take a while. It may take a period of time. It could stretch through the end of next year,” Powell said during a rare televised interview that aired on “60 Minutes” Sunday night. “We really don’t know. We hope that it will be shorter than that, but no one really knows.”

In the months ahead, there are a few sectors that you will want to keep a particularly close eye on, and one of them is the commercial real estate market.  The following comes from Zero Hedge

“Fast forward to today, coronavirus outbreak, and the ensuing lockdown, has essentially frozen the commercial real estate market. Buildings that were once used for restaurants, offices, hotels, spas, and or anything else that is classified non-essential have seen soaring vacancies.

This is single handily sending the commercial property market into chaos. As vacancies soar, tremendous downward pressure is being put on almost every asset class tied to commercial real estate.

The latest TREPP remittance data compiled by Morgan Stanley showed a quarter of all commercial mortgage-backed securities (CMBS) could be on the verge of default.”

I am personally convinced that we are on the precipice of the greatest commercial real estate implosion in American history.

As the dominoes tumble, it is going to send wave after wave of devastation through the financial industry, and it is going to make the subprime mortgage meltdown of 2008 look like child’s play.

But at least bankruptcy lawyers will have plenty of work.  Last week we learned that J.C. Penney filed for Chapter 11 bankruptcy protection, and of course the bankruptcies that we have seen so far will just be the tip of the iceberg.

I think that politicians all over America are going to deeply regret overreacting to COVID-19, because nobody is going to be able to put the pieces back together now that our economic bubble has burst.

Sadly, very few people understood how shaky our debt-fueled economic “boom” was, and ultimately it didn’t take that much to push us into a new economic depression.

And now every additional crisis that comes along is just going to escalate our economic troubles.  This is going to be one very long nightmare, and there will be no waking up from it any time soon.

Even before COVID-19 came along, homelessness had become a massive problem in many of our major cities, and now tent cities are rapidly multiplying in size.

There is going to be so much economic pain in the months ahead, and it could have all been avoided if we had made much different choices as a nation.

But we didn’t, and so now we all get to pay the price.

Mr. Snyder wrote this article and I respect his opinion. I am not taking issue with his story, but he is a respected conservative voice in a world of noise.

So, I ask you, what if he is correct in his judgment and collapse is coming sooner than later?

Are you prepared for what is going to happen to your retirement and investment account values?

Are you sheltered from those accounts declining 40%? 50%, 60%, or more.

The Wealth Preserver Membership can protect your account from any stock market collapse. Please know that until it does collapse, your investments continue to grow as usual. 

Why Mark Mobius says the stock market hasn’t seen an ‘absolute bottom’ yet

Why Mark Mobius says the stock market hasn’t seen an ‘absolute bottom’ yet

Emerging-markets investing pioneer Mark Mobius made those remarks Tuesday in an interview with CNBC, putting him in the investing camp that expects an inevitable cascade of brutal economic data and corporate earnings hasn’t been fully discounted by investors.

Mobius, who founded Mobius Capital Partners in 2018 after a three-decade run at Franklin Templeton Investments, said corporate earnings would be “pretty bad” and that while some bargains have emerged, investors should keep some cash ready to deploy in the event of a further market downturn.

U.S. stocks hit all-time highs in February, then plunged into a bear market as the global spread of COVID-19 forced the U.S. and countries around the world to largely lock down their economies in an effort to contain the outbreak. Stocks have taken back a large chunk of lost ground since March 23, however, with recent gains tied to expectations the pandemic is near its peak, turning attention to efforts to reopen economies.

Market bulls have argued that the unprecedented nature of the shock and the massive response from the Federal Reserve, other central banks, and governments have rendered most comparisons to past bear markets debatable.

Others have cautioned that stocks are largely sticking to the bear market script.

“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” he said. “We might see a double bottom.”

The Virus Peak & Stock Market Bottom

The Virus Peak & Stock Market Bottom

I cannot make any claims about the virus itself and this post is the reaction of major stock markets. A good explanation I’ve found on epidemics and exponential growth is this one on YouTube which I recommend watching if you are not already up to speed.

Looking at the current situation it appears that the market has room to fall further as the economic fallout continues and the virus spreads.

If the virus starts to slow down, it won’t be long before stocks find a bottom given the huge amount of stimulus that central banks are providing.

The most important thing is that we need to see the number of new daily cases start to flatten out.

Currently the virus is spreading at an exponential rate and that is causing businesses and services around the world to enter lock-down.

That has dire consequences for company profits.

Exponential Growth

To summarize some of the information in the mentioned video above, exponential growth means that as you go from one day to the next you have to multiply by some constant.

In the case of coronavirus, daily cases have been increasing by about 1.15 to 1.25 times the previous day’s cases. This results in an exponential curve with the number of new cases increasing on a daily basis. In fact, a virus provides a textbook example of exponential growth since what causes new cases are existing cases. However, there comes a time when exponential growth has to slow down.

For example, as millions of people become sick there are fewer people that can be infected so the rate of new cases must decrease. Likewise, measures such as hand washing and limiting gatherings also have the effect of reducing the spread.

So an exponential curve will eventually level out at an inflection point and turn into what’s called a logistics curve. At this point the number of new cases each day levels out and then starts decreasing. We have already seen this happen in China and now it is happening in South Korea too.

 New cases in China leveling out. Source: John Hopkins University.

Growth Factor = No. New Cases Today / No. New Cases Yesterday

A value over 1 indicates that we are still on the exponential part of the curve and there may be higher magnitudes of new cases ahead of us. In other words the growth is not slowing down.

This is the case right now in the USA and Europe. Whereas a value of 1 means that growth is leveling out and a value under 1 means new cases are decreasing.

Taking China as an example, the coronavirus spread began at an exponential rate which has gradually leveled off thanks to drastic shutdown measures.

With new cases appearing to have peaked the country has been able to get back to work and reboot its economy. Meanwhile, the United States and Europe have only just started to see new cases increase, indicating that they are likely to be near the beginning of the exponential curve.

What does all this mean for the stock market now?

I think we need to see the growth rate of new cases in the US and Europe start to level off before we can put in a major stock market bottom. So we need to see the daily growth rate drop to one or below and then stay there, perhaps for a week or so.

Once that happens I think we will see a bottom in stocks and a significant relief rally thanks to the huge amount of stimulus that is being provided by central banks.

It is because of this stimulus that we will see the slingshot. Importantly, though, I don’t think we need to see growth rates level off for the whole world.

It would be enough to see growth rates in the US and Europe start to slow for a bottom to be put in.
That’s because these areas (plus China) account for the vast majority of global GDP.

To keep on track of this I am using the coronavirus dashboard developed by John Hopkins University which seems to provide the most up to date and reliable figures that I’ve found. The dashboard provides the latest statistics on new cases which can then be used to calculate growth rates. 

For example, new cases outside China was 100.5k on Monday March 15th, higher than the previous day’s 81.7k cases and higher than the 75.1k cases on Saturday, a growth factor of 2.8.

Analyzing these numbers it doesn’t seem all that surprising that 10% drop in US stocks that day coincided with a huge daily growth rate of 2.8 times (this is for locations outside Mainland China).

Final Thoughts

Ultimately, virus growth rates and the stock market are linked and so long as the curve is exponential the markets are going to struggle.

Stock markets are likely to rally every time the virus looks to have been defeated, even when it’s not.

The data isn’t entirely accurate so there is likely to be some false starts. It’s also possible that the market will be able to lead a flattening in the virus whether it is caused by luck, government intervention or some other reason.

But eventually the market will get it right, it always does.

That being said, when stocks are up and the exponential curve has leveled off, review your Daily, then your Weekly charts with signals for Green Light Trade Signals because that will mean we are close to a bottom, or the bottom may be in!

Credit: Mr. Marwood, thank you for your research.

A 100% Legal Insider Trading System

A 100% Legal Insider Trading System

A 100% Legal Insider Trading System is legal is because directors are allowed to purchase and sell shares in their companies provided they do so in a timely manner and disclose their transactions with the SEC. It would make sense that company directors are best placed to evaluate the value of their businesses so the insider trading anomaly has been a fruitful line of inquiry for many researchers over the years.

In 1976, a paper from Finnerty concluded that increased insider purchases led to excess returns of 4.6% in the first six months while insider sales led to excess returns of -2.4%.

In more recent research from Jeng, the authors found that sales did not produce any meaningful results but insider purchases led to annual excess returns of as much as 11.2% over the S&P 500.

However, subsequent research from the Handbook of Equity Anomalies used the same methodology and produced annual returns that were nearly 7% lower between 1978-2005.

Nevertheless, the anomaly still shows grounds for development particularly in smaller cap stocks that are out of the realm of big firms.

In one study from the same book mentioned above, small cap stocks that had seen intensive insider purchases produced excess returns of around 5% in the first month, with most of those coming in the first 10 days.

This is illustrated in the following chart taken from the book:

The Insider Trading Trading Strategy

Most of the return from insider trading comes in the first 10 days. Src: The Handbook of Equity Anomalies. Wiley.

The Insider Trading Trading System & Strategy

There are a number of online resources you can use to track insider trading such as Insider Monkey and SEC filings. You can then go long small cap stocks with strong insider purchases. You need to be quick as most of the return comes in the first few days.

Have fun.

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