In the last few days, the CEOâs of Bank of America (BAC) and JP Morgan (JPM) both bought a significant amount of shares of their own company. There are many reasons to sell shares of your own companyâs stock if you are an officer of said entity. You may want to diversify your holdings by placing some of the monies elsewhere. If well-paid, you may simply want to sell enough shares to insure that you and your family are set for life. And of course, maybe you think the prospects for your company just arenât that good. Now, Iâve been doing this for many years and until recently, I truly believed that the only reason that one would buy shares of his/her own companyâs stock is if he/she thought the price would go up and thus, he/she would have darn good reasoning to buy the stock. Well, interestingly, shares of both BAC and JPM already trade below where their CEOâs purchased their positions. Then, I did a little digging. What I came up were two discernable thoughts. First, is it possible- this coming from the cynic in me-that these buy orders are but a relatively tiny fraction of these officerâs wealth and serve as a show of support? For instance, is the CEO of BAC simply trying to buy time for his company by showing that if he puts his money where his mouth is, he believes in the firmâ¦or is it a façade to buy more time? The other conclusion is that these wealthy individuals (now poorer) just have a false sense that everything will be OK. OnOctober 24, 2007, a director of Wachovia Bank (WB) bought 10,000 shares of that stock at 44.80. It gets better. On September 15, 2008, another director bought 1,000,000 million shares of the stock at 11. The stock closed out the year at 5.87 when it was bought out by Wells Fargo (WFC)- in the interim, WB traded below 1! So, as day traders, the gut reaction is to hit the âbuyâ button whenever we see a story cross about insider buying because, well, it has always worked and it will keep working as common sense says to âbuyâ when seeing headlines like the ones we saw in BAC and JPM earlier this week. But the astute day trader should take a little time and study the buying patterns of the officers at the company because a short through the price at which the officers purchased the shares is setting up to be a new and creative way to play the financial crisis of the late part of this decade. The Tokyo market was down almost 4% overnight with more moderate losses in the rest of Asia. European bourses are down 1% to 2% across the board. State-side, futures are well down albeit off their lows on the GE news. With GE bouncing and GOOG up, I am not sure how we cannot at least try to rally this morning, but the numbers showed precious little reaction to GEâs strength. Thus, itâs âbe carefulâ time. The markets should open well lower this morning and stage a bit of a rally. If that rally is a weak one and particularly if GE begins to sell off, watch out otherwise weâll likely chop around much of the day in a frustrating directionless manner albeit in negative territory. Benchmarks today are GE, GOOG, and the banks with techs showing relative strength. Reiterating- Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea. If the whole story is not there - If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified- Good- The following stocks have good news and/or a strong technical pattern GOOG- solid earnings SYNA- good earnings CNI- decent earnings CBST- good earnings FII- decent earnings TPX âdecent earnings EZPW â good earnings SCO- solid guidance LMT- closed near a high after posting earnings Thurs morning POT- closed near a high after posting earnings Thurs morning ATHN- featured on âFast Moneyâ last night HCN- replacing SOV in the S&P 500 when SOV deal closes FRX, CAG, MDRX- featured on âMad Moneyâ last night GERN- received FDA approval to begin worldâs first human clinical trial of embryonic stem cell-based therapy GE- in-line earnings, but maintaining dividend and talking optimistically about the future WYE/PFE- rumors of megadeal in which PFE will buy out WYE Bad-The following stocks have bad news and/or a weak technical pattern ISRG- met earningsâ¦seems growth is stalling based on conference call WFR- beat earnings; said that revenues this upcoming quarter will be less than half of the 4th quarter. Wow. COF- missed estimates MSCC- missed earnings and warned JCI- closed near a low USB- weakest of the bank stocks yesterday AFL- Morgan Stanley issued a report indicating that AFLâs European based asset portfolio is rapidly deteriorating; the company defended its capital position to seemingly no availâ¦MS and FBR both say shares have priced in issue now, but stock stil lclosed near low HPY- closed on its low CNH-closed near its low FNF- closed near a low STI- closed near a low CINF, EWBC, FULT UCBI, AMFI, BPOP, FITB- all smaller banks/financials closing at or near trend lows CATY- closed near a low GTXI- demolished yesterday on worries over the EU not allowing GTXIâs products to be sold in Europe TRV, PGR- among the insurers closing near lows MFC- broke down in closing near the low for the day HOG- bad earnings SLB- bad earnings XRX- warned in its outlook IBI- warned on its earnings outlook Earnings: FRI JAN 23 BEFORE GE GMT HOG SLB WBS XRX Good luck today. Erik R. Kolodny
Erik I gotta say I like your creative analysis about insider buying... very similar to how Livermore thought about the market. Personally I believe BAC and C will probably not survive this based on how they are trading.