Insider buying moving in opposite direction to market trends

Contrarian investors should prepare to act.

(Photo: PhotoAlto/Sigrid Olsson/Getty)

(Photo: PhotoAlto/Sigrid Olsson/Getty)

INK Research reports on a rather interesting divergence in stock markets. Junior mining stocks in Canada are still struggling to find a bottom many years after the financial crisis of 2008, yet insider buying is currently at elevated levels among corporate executives and directors. The pattern is reversed for U.S stocks.

The S&P/TSX Venture Index ended last week at 1,120, down substantially from the all-time high of 3,370 in May of 2007. Junior mining stocks are still mired in deep pessimism, unlike U.S. stocks, which are now flirting with all-time highs. Yet insider buying is strong for Canadian junior miners but weak for U.S. stocks.

INK Research indicators show that for every stock with insider selling on the S&P/TSX Venture there are more than four stocks with insider buying. For the U.S., data show a multi-year low in insider buying as of mid-February—“almost 4 stocks with key insider selling for every one with buying.”

This data would seem to reinforce the view that contrarian investors could be getting close to an opportunity to buy resource stocks while they are down and out. However, watch out for lag: INK Research says insiders can be six to 36 months early. And judging by the historical record, an uptrend in junior mining stocks would not likely start until after a rebound in the shares of senior producers.