Bounce: The market has bounced since August 8. It remains to be seen whether this will mark a bottom or not. If it was a bottom, it was accompanied with things often associated with bottoms, including highly negative sentiment and significant insider buying. Interestingly, August 8 marked the day the market was first able to react to the S&P downgrade of U.S. debt. So, since that seemingly abysmal news, the market has been relatively strong.
Russell 2000 (One Year)
Insider Buying: The insider activity I have referred to has continued. According to Vickers Weekly Insider, insider buys increased eight-fold over the past two weeks and 16-fold over the past three weeks. The number of buys reached almost three times the number of sells. It is very rare for buys to outnumber sells. The last time this occurred was March 2009, which we know marked a major low in the market. It is interesting that insiders turned extremely bullish during this period. They seem to believe the fears that have driven their stocks down are unwarranted, and that their businesses are doing better than the market is pricing in.
Individual Investors Panic: During the week ended August 10, investors’ net outflows from stock mutual funds totaled $30 billion. This is the highest level since October 2008, in the midst of the financial meltdown. This represents a very high level of fear, which often coincides with low points in the market.
Tale of Two Cities: The last two blog entries show two very different behaviors. On one hand, we see executives, who know more about their companies than anyone, taking money out of their pockets to buy stock. Additionally, some very well regarded investors like Warren Buffett have come out buying or saying they are buying stocks. On the other hand, individual investors, who are typically more emotional, are selling in droves. I asked last week whether the most recent activity represented the dumb money selling to the smart money. It appears that some of the recent evidence might suggest that this is indeed the case. Time will tell.
Market Today: The market closed flat to slightly down today. The day was tame, if you consider a two percent intraday range tame. After a strong bounce in most stocks, it appeared today that the buyers might be a bit fatigued.
