Investing Update: Insider Buying Returns
What I'm buying, selling & watching
The S&P 500 finished the week near the high for the year at 4,169 (+8.6% YTD). While the Nasdaq closed at the high for the year at 12,227 (+16.8% YTD).
The stock market is recovering and investors refuse to believe it. Selling just isn’t sticking. This is now a three month rally and we’re six months off the lows from October. The S&P 500 has climbed from the low of 3,491 in October to 4,169. A gain of 19.4% from the lows.
The reasons why the market is going to fall and set new lows this year have gone on for months. First it was the sky high and continued rise in inflation. We have inflation easing and continuing to come down. I think that continues.
Then it was the rising interest rate environment. At the Fed meeting in May I firmly believe they pause. Regardless what I think the continued hiking is clearly coming to an end.
Then the banking crisis was going to take down the market. That didn’t happen.
Now the bears are still clinging to the looming earnings apocalypse. We’ve heard about a collapse in earnings for over a year now.
Earnings collapsing is a very important factor. But how have they been doing? Is there a looming worry? The earnings scorecard isn’t raising alarm bells. So far in Q1 with over 20% of companies having reported, earnings have been just fine. Trending actually better than the past two quarters.
A recession worry is very plausible. A past indicator of an oncoming recession is this chart illustrating the tightening of credit by banks to small firms and when that spikes a recession occurs.
The focus of a recession is important because if you go back almost 100 years the S&P 500 has never bottomed before a recession.
So if we do indeed experience a recession, history tells us we will have to revisit new stock market lows. This remains to be seen and it’s possible history doesn’t repeat itself, or we don’t experience a recession. Time will tell.
New 52-Week Highs Are Not Happening
As the market continues to fight its way out of bear market territory, the number of stocks in the S&P 500 making new 52-week highs is only at 4%. This is important because as you look back as new bull markets started to form, the number of stocks hitting new 52-week highs spiked. It’s one reason many are not buying into this rally and are still so bearish.
First Buy Signal Since 2009
The Coppock Curve is a long-term price momentum measure that’s used to identify major upturns and downturns in the stock market index. What caught my eye is it recently flashed a buy signal for the first time since, wait for it, 2009! A momentum based strategy has done very well for quite some time. So for a momentum measuring index to flash a buy signal for the first time in 14 years really jumps out.
Money Market Funds Finally See Outflows
We’ve finally seen some outflows from money market funds. In fact, we just saw the largest weekly outflow since July 2020. With all the money that has gone into money market funds the question is where does this money end up going? I still believe a lot of it finds its way into stocks.
Insider Buying Returns
There were 1,181 inside buyers (officers and directors) at more than 600 companies in March. That’s the highest level both for individuals and companies since May 2022. The insider ratio of buying to selling hit the highest level since September 2022.
After I saw the above chart my first thought was that was all done by people in the financial and banking sector during the banking crisis. Then I saw the below chart which shows over half the purchases were made by non-financial companies. That really makes this worth noticing.
Moves I’ve Made
CrowdStrike CRWD 0.00%↑ I had last bought more CrowdStrike at $123 back in November. I’ve watched it closely and after the last earnings I wanted to add more. I really liked the report as it hit an ARR record and still maintains a large backlog. My buy point was below $123 and Tuesday during the mini miniselloff I added more at $122. I still maintain that this is one of the best overall growth names which is in a growing and important sector (cybersecurity).
S&P 500 Index Thursday I added to my S&P 500 index holding. I felt this was a good time to make my monthly contribution to buy more of the overall market.
What I’m Watching
Lumber just hit the lowest point in three years. Quite a roundtrip from where it was not that long ago.
On the other side of this we now have the home builders hitting new all-time highs. With no homes for sale and inventory sparse across the country, buyers are turning to new home builders for houses.
The ishares U.S. Home Construction ETF ITB 0.00%↑ is approaching an all-time high.
The top two holdings are home builders D.R. Horton DHI 0.00%↑ and Lennar LEN 0.00%↑, which both are at all-time highs.
With many homeowners sitting with mortgage rates under 4% while the current rates are at almost 7%, most people just aren’t interested in moving. You can see why there are no existing homes for sale.
What hasn't joined in on the home construction run up is Home Depot HD 0.00%↑ which is down 4.87% YTD and Lowe’s LOW 0.00%↑ which is only up 4.42% YTD. These are the 6th and 7th largest holdings in the ITB ETF. They sell to and supply both the builders and homeowners. With people tied to their homes, I think you'll continue to see them put money back into their homes. I’m looking at these two forgotten about stocks as interesting buys which have room to run higher.
The Coffee Table ☕
It isn’t often when you read a market strategist’s viewpoint and it actually sounds like something you wrote. Ryan Detrick wrote Is Anyone Bullish? (Part 2) and I agreed with so much of what he said that I had to link to it. Some points he made I had down to write about this week so give him a read.
Ben Carlson wrote a very good piece on the current and future state of housing. Will We Ever See Affordable Housing Prices Again? He makes some great points where we are relative to history and shares some good charts as well.
Last week Spilled Coffee hit a milestone. In celebration I opened a bottle of E.H Taylor Single Barrel. I had been saving this for a special occasion. It was worth the wait! This is among be the best bourbons that I’ve ever had. It’s right there with Blanton’s as my favorite. It’s very hard to get but give this a try if you get the chance. There aren’t many that compare to it.
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.