Time Frame: Long
Category: Smart Money

Description

A corporation's officers and directors are required to notify the SEC whenever they buy or sell shares of their company's stock. These insiders usually know more about the prospects of their company than most investors. When insiders buy or sell their company's stock it is conjectured that they state their opinion of the company's future. When there is an unusually large amount selling by insiders market wide it is an indication that the stock market may be overvalued. If insiders are buying aggressively it is signal that the "smart money" believes the market will rise. This was the case in January of 1995 when, according to the Vickers Insider Sell/Buy ratio, insiders were more bullish than they had been, on average, in all of 1994.

Calculation & Significant Levels

Vickers Insider Sell/Buy Ratio: Calculated by dividing the total number of insider sales transactions into the total number of buys filed with the SEC each week. The indicator is an eight-week moving average of the weekly ratio. A reading of less than 2.0 is bullish and over 2.5 is bearish.

Formula:
Eight-week average of (weekly insider sales/weekly insider buys)

Gauge Elements: Magnitude, Slope
Updated: Weekly (as of Friday close)

Strategy