Insiders Buying (FAS,BAC,MSFT,QQQ)

The world is on the edge. The market senses it. The political class makes hay of it. The news media luxuriates in it. And the average guy on the street just stares into the headlights, frozen, unsure when impact will occur.

 

One would think that the reaction here in the U.S. of A. would be one of outright panic. After all, we are the world’s leading consumers of news and politics, the ones who imbibe daily wars in the Middle East, the dreaded actions of the Fed (and other central banks), the rancor of an elbows-only political rush to become president. We hear it and see it and breathe it daily, non-stop, and whaddaya know…?

 

We’re unmoved.

 

Is it because we’re so damned distracted by our gadgets and our own race for more stuff and more action and more get-it-on? Have we lost contact with the real world, grown numb to the ominous realities, financial, military and human that press all about us?

Fat Bastard

Some of us may have the luxury of dwelling gated communities and living lives where nothing dire or unsavory comes into view, but most of us are out there with the masses and see it.

 

So what gives?

 

Ladies and germs, the bottom line is not as many think. We are, indeed, headed toward something calamitous, though when it arrives is beyond our ken to know. Like the proverbial slow-motion train wreck, we watch it derail before our very eyes and at the same time stand detached, spectator-like, almost oblivious to its occurrence.

FXI Technical

But it’s coming. Just like it did in China. And maybe worse.

 

Interestingly, it’s the best part of us, our greatest strength, our ‘can-do’ spirit inherited from our fathers and grandfathers before us, that’s leading us headlong toward the wrecking ball.

 

For we believe in our leaders and our associates, and in some cases our friends and our families (not to mention ourselves), to an unhealthy degree. We say that if they’re not worried, why should we. But we’re mistaken. Because our undoing lies precisely therein.

 

The Paralyzing Effects of Hubris

 

It’s action that’s required, friends. Like a surgeon in a war zone, there’s no time for distraction and daydream. The time is now to get your stuff together and make your preparations, because the day will come – even if it’s yet two or three or five years off – when the come-uppance will come up, and you’ll have no one to blame but your sweet little self for not re-jigging your affairs to accommodate the incipient nasty reality that this way comes.

 

A Delay in Judgement

 

That said, let’s not think for a moment that the decline, moral and financial is imminent.

 

On the contrary, all the hullabaloo gives us great hope. For it is only amidst deep uncertainty and against the backdrop of outright Armageddon that the market rises like a fury.

 

And so it will be.

 

Look at this –

Insider Buying Stock Rout

The chart shows a clear spike in the number of insiders currently buying shares, an indicator that is not to be trifled with, if one considers the past market-timing abilities of this cohort.

 

At the bottom of the decline in 2008/2009 when the entire world was awail in a wrist-slitting chorus of doom, CEOs, Directors and their partners in crime were ponying up like drunks at the roulette wheel, certain they would be vindicated.

 

And they were.

 

So, too, during the brief panic in the summer of 2011.

 

And again now.

 

Because they know something we don’t?

 

That’s right.

 

According to a Bloomberg News report dated February 10th,

 

A total of 699 officers and directors of American companies purchased their own stock in the last 30 days compared with 828 who sold, the most bullish ratio in more than four years, according to data compiled by The Washington Service and Bloomberg. Stocks with the worst losses, such as financial firms, are seeing the biggest increase in demand.

 

Is it a coincidence that this upsurge in demand tallies precisely with the worst sentiment of the last half decade on Main Street (according to data from the AAII)? Or that it comes at a time when global equity valuations have shrunk by some $3 trillion?

 

No.

 

It means we are currently at or near a bottom, and it behooves anyone who gives a Chilliwack about his investment portfolio to make a stand today before the love and harmony of the last six years of bull market mummy-hugging return and the next 3000 points of Dow gains are but a fleeting memory.

 

How do we do that?

 

We’ll get there in a moment. Let’s first wind down a couple of trades.

 

We start with an initiative launched three weeks ago in a letter called Call a Freakin’ Doctor. There, we urged you to purchase one MSFT February 12th 51 PUT for $2.20, and sell three (3) MSFT February 12th 46 PUTs for $0.64 each. Total debit on the trade was $0.28.

 

And today it looks like this –

 

With but a day before expiry, the long puts are worth $1.44 and the short puts virtually nothing. Leave the latter to rot and sell the former for a gain of $1.16 on $0.28 down. That’s 414% in three weeks, and it’s just lovely.

 

Next up is another Microsoft trade, launched back in April of last year in a letter called Microsoft Jumps! Sell Microsoft! In that missive we recommended you purchase the QQQ January 119 CALL for $1.97, and sell the MSFT January 50 CALL for $1.92, for a total debit of $0.05 per pair traded.

 

And when the cookie crumbled, the QQQs were out of the money, but MSFT was not.

 

We therefore find ourselves short 100 shares of Mr. Gates’s love-child at $50.

 

And…

 

Today they’re quoted in pre-market trade at $48.75. Don’t take any chances. Buy them back for a profit of $125, and thank your maker it ain’t worse.

 

Today’s Trade

 

As mentioned above, the biggest insider purchases are coming from the financial sector. And a look at the biggest, baddest member of that group, Goldman Sachs (NYSE:GS), shows a stock in the process of turning.

 

Have a look –

GS Technical

What’s most important is the RSI and MACD divergence (in black), a clear sign that selling pressure is abating. And after a thirty per cent drop in three months on burgeoning volume, we say the jig is up.

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We’re going to climb on this buggy with a simple long/short trade, buying the most leveraged financial sector instrument we can find, the Direxion Daily Financial Bull 3x ETF (NYSE:FAS), and selling Bank of America (NYSE:BAC) against it.

 

Wall Street Elite recommends you buy FAS, now trading at $16.39, and sell BAC, now going for $11.20, in equal numbers. Total debit is $5.19 for every board lot traded.

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With kind regards,

 

Hugh L. O’Haynew

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