Insider Buying of Junior Mining Stocks at Record Levels

Owning stocks in the junior mining sector is like holding a stick of soggy dynamite. With a good trade, your portfolio gets a growth explosion. With a bad trade, you explode.

These shares have taken a beating in 2013, creating huge opportunities for value. Insiders have no compunctions about scooping up shares at these low prices.

The INK Research Venture indicator was at 715% on April 30. This means that in the past 60 days, more than seven stocks on the TSX:V have insider buying for every stock with insider selling. Historically, this tends to foreshadow a rally in those prices.

In early March, this indicator was ‘only’ at 400%, so there has been a large increase. The current number is very close to its all time peak of 735% back on October 27, 2008. This preceded the bottoming-out of the Venture market in December 2008 by about six weeks. You may recall how that was a time when many people thought the world was going to end.

But wait. There is also a shorter-term 30-day Venture indicator. It hit 1229% on April 30.

Then there is the INK Gold Stock Indicator. This tracks insider buying on Canadian-listed gold stocks. There are more than 10 stocks with insider buying for every stock with insider selling. This indicator hit an all-time high of 1046% on April 26.

To be a successful investor, you have to be gutsy and buy when prices are low. Maybe insider buying patterns give some encouragement to acquire more soggy dynamite for your portfolio.

Read more in INK’s report

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US shows two negative indicators

Corporate insiders, apparently bullish no less than a month ago, have been selling nearly seven shares of their company’s stock for each share they are buying. When there is a major rally from summertime lows, you can typically observe the public starting to unload. But insiders seem better than average at buying their own stock on highs and lows. Recently, during the 2012 November lows, they were selling only three shares for every two shares they bought. During the summer lows, the ratio was 2:1.

This rate of selling is high above the long-term average, and close to relatively highs. This suggests that the market is coming up on a correction.

Meanwhile, another report brings grim tidings: The United States’ current account continues to shrink — imports are falling fast.

According to the data, imports are now down two months in a row having fallen 8.4% in the third quarter and 2% in the prior quarter.  This is a rare event and has definitely raises the recessionary “red flag,” according to Robert Brusca, chief economist at FAO Economics. When the economy weakens, imports weaken rather quickly, Brusca notes.

The last time imports declined for two quarters was in 2009, the end of a four-quarter slide in imports during the Great Recession.

Fewer imports is a sign that domestic demand is faltering. A recession is “a real risk,” Brusca said.

Note that the first indicator is probably aggravated due to the fiscal cliff, the second indicator is not.

When the US enters a recession and joins almost every other major economy, Canada will be quick to follow.

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