Are technology insiders right about buying their stocks

June 17, 2022No Comments


Hello, and welcome once again to the Smart Money, Dumb Money show. And I am your host, as usual, Keith Richards. I’m chief portfolio manager, chief bottle washer, and president of the company, and most important of all, I’m a technical analyst. So as always, we’re here to talk about technicals. By the way, before I get started, if you didn’t see the video interview with Brooke Thackray last week, it was just posted recently. You really need to take the time to see that video. I think there’s a lot of good information. We bantered back and forth on a variety of subjects including sectors that we like even in this raging bear market. So let’s get started on today’s topic. And today we’re going to take a look at the technology sector, which I have looked at a couple of times before. Now, there’s probably no sector that’s been more hammered in this bear than technology stocks, but an interesting phenomena has happened.

 

And that is that we are starting to see insiders buy the shares with great enthusiasm of their stocks. And there’s kind of a known rule within Wall Street and it basically says that if insiders are selling a sector or a stock, it often doesn’t mean a lot. Sometimes it does, but usually they have to be very careful with their buying and selling. So if they are privy to information on the downside or upside, they really have to be careful with trading because it can be kind of considered front running by an insider. So buying stocks is usually not because they are privy to anything it’s typically because they feel that the market is discounting the value of their company. So one way we can look at the insiders is to

 

So today we’re gonna look at the chart, of course, and some of the indicators surrounding that chart and what it might be saying, but we’ll also look at the insider trading activity as well as seasonalities and kind of put it all together and try to ascertain whether now or sometime in the future we should start looking at the technology sector. Now again we are in a bear market right now and generally speaking, I’m laying low, but I’m trying to build up ideas for very near future, I would hope, buying opportunities that may happen within the next three to six months is my thought bubble. There’s no absolutes in the market, but my thought bubble says that perhaps we’re seeing enough traditional bear market activity that would suggest that this bear market might only have a number of months left in it.

 

So let’s start building up a menu of stocks that we would like to own, not necessarily now, but in the future. So let’s share the screen and I’m going to go right into a little bit of a PowerPoint presentation because I’m drawing from different sources here. So I’m not just going to go right to my usual stock chart screen. So my question that I’m asking is, are insiders right about buying their own stocks? Are they right or are they wrong? So let’s take a look at the the chart of XLK. Like I mentioned, it’s kind of the benchmark for US technology stocks, and you can see that XLK had support somewhere around $140. And recently it broke that level. You can see the support through here. That was an old high. Generally there were a number of bumps close to 140, sometimes 145 like here, but there was about a 140 and then it kind of clustered around there and then it recently broke.

 

And you can see it’s definitely below 140. It is down to 127 now. So it’s a definitive break. Some of you know I usually follow at least three days after a break and it’s had multiple weeks that it’s broken. So that’s broken. So the next target is very likely into the 110 area. So that’s a long way off meaning that you probably, as an investor, don’t want to be too excited about buying if you have a time horizon rather than the very short term for a potential trade. And speaking of that, you can see on, this is a weekly chart so these indicators are based on weekly data, but you can see stochastics has definitely formed some sort of a oversold condition. So is RSI. And we’re seeing even MACD, which is a much longer indicator, although it is generally trending down, the histogram shows us there is some life in it.

 

And of course, you know, the negative stuff like the accumulation distribution, which is money flow. Money is leaving technology for good reason and the performance against the S&P, which is here, is trending down. So the big picture is still kind of lousy, but maybe there’s some evidence of enough oversold conditions to suggest that the market might give it a little bit of a break. Whether that’s worth trading or not is the question. So let’s take a look at another big picture situation, which is the insiders. You can see that the insiders are often right. This sector here, unfortunately, this little blurb is in the way, but you see the sector was kind of flat here. The insiders started buying and the sector moved up. So the markets moved down and the insiders are definitely buying. Anything below the green line is suggesting that they’re not aggressively buying and anything below the red means they’ve been aggressively selling.

 

So the, or at least less buying because this is not a buy sell index. This is only buys. But the point is, we’re seeing a lot of activity on insider buying, which hasn’t happened for at least the past five years. So that’s good news. From a seasonal point of view, the technology sector has its best gains generally over the winter. You can see that on this chart from, oops, from Equity Clock. But there is a short term pop that actually can happen in July. And I’m speaking, you know, about the middle of June. So maybe coming to a theater near you’ll see a bit of a pop as indicated by some of those technical momentum indicators we were just looking at. So there is some near term, very, very short term, like maybe two, three weeks upside from a seasonal point of view on the technology sector.

 

Probably not enough to trade for most of us, but it’s an interesting thought because the momentum indicators are suggesting there is a setup. So let’s just do a quick breakdown here of what we’re looking at. First of all, XLK and the technology sector is not a low beta play. If you don’t know what low beta or beta is, beta is a measurement of how a sector or a stock performs against the market. So a higher beta sector like this technology sector tends to be high beta. It might move, it might have a beta of 1.2 or 1.3 or 1.4. That means it could have 20, 30, 40% more movement on a relative basis up or down versus the market. That’s all beta means. It moves with the market, but more aggressively. So XLK is not a low beta play.

And generally when we’re in a bear market, of any stocks we hold, we wanna hold low beta cause then they don’t perform in line with the market as much. XLK did break as we saw on the chart, the first chart, $140 support. It’s next target is 110, but in the meantime, stochastics suggests it’s oversold. So does MacD. So does RSI. There’s more, MACD is generally still trending down, I should point out, but there’s the histogram that is suggesting maybe a short term potential. XLK is usually not bullish between May and November so it’s not a place you want to be a long term holder, but it does have some short term seasonality, as you saw. Insiders are buying as we saw that and that’s not necessarily a short term good news piece, but it’s most certainly a display of their confidence in their companies.

 

And that’s a good thing because they know the companies better than you and I do. So my big conclusion, whether you choose to trade a sector like this for a potential short term blip or not, that’s really left up to you as to whether you’re an aggressive or short-term trader, but in the longer run, this bear market will end. Again, is it three months? Is it six months? Is it eight months? I don’t know when it’s going to end, but it ends. All bear markets do. And when it ends some of the indications I’m seeing by the insiders, by, you know, some of these longer term indicators like MACD and whatnot and support levels might suggest that the sector, the technology sector may be one of the first sectors to really pop coming out of the bear and moving into the next bull market. So it’s definitely something that I personally am keeping on my play sheet.

 

We do not have any exposure take technology right now, for good reason. But that doesn’t mean that we won’t in the future and you’ve got to have a buy list lined up. You can’t, you know, be late on some of these buses by too much. The last thing I just want to point out and that is our, I like to point out our performance at ValueTrend. And as you can see how our active approach versus buy and hold has been working. The performance bars here are up to the end of May 2022 and they are gross. So meaning before fees. So our clients are charged fees and it depends on how much assets they have with us. But let’s just say this, the most they would pay on our full equity platform is 1.75. And that’s if you have our minimum amount to deal with us.

 

And even after that, if you look at these numbers, the green is what we are and the gray is what the market has done. And the market in this example is 85% TSX. So actually we’re at a disadvantage because the TSX lately has very outperformed the S&P 500. But of course in the past, the S&P was outperforming the TSX. So nevertheless we’ve always used the 85% TSX. And of course we’re fighting a bigger index or a better performing index right now because the S&P has done much worse than the TSX. Still, we are outperforming this combination 85 TSX, 15 S&P by large margins. And so even if you were to subtract, you know, over the, say, the one year bar, the 1.75%, we’re still, you know, well ahead of this index, even after fees. So this is a pretty good example of why you need an active approach. And this video is always about giving you ideas for active investing ideas.

 

If you prefer to have someone like myself and ValueTrend, our company, do this for you because there’s only so much that I can show you on this video. Then contact us, go to our website, www.valuetrend.ca, hit the contact or hit the info button. And you can always shoot us an email and we can get a conversation started. So thank you for watching this video and I’ll be back as Arnold Schwarzenegger says in pretty much every movie he does. Next week I’ll be talking about some new ideas as I always try to do on this video. Thanks for watching.

 

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