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Insiders, at Least, See Reason to Smile
because securities laws require insiders to notify the Securities and Exchange Commission whenever they trade in their companies’ stocks.

Correctly interpreting these trends, however, isn’t as straightforward as one might imagine, Professor Seyhun said in an interview. For example, he said, insider selling when prices are rising is relatively benign. By contrast, insider selling in the wake of declines in a company’s stock price is a particularly bearish omen, suggesting that the insiders have little confidence that the price will soon recover.

But now, in a bullish sign for stocks, insiders have been reacting to the market’s recent tumble by markedly increasing their buying. This means that insiders must see the market’s current weakness as merely temporary, Professor Seyhun said.

The professor has devised an Insider Trading Index, based on transactions back to 1975, that considers various factors that his research has found useful in interpreting insiders’ behavior.

Professor Seyhun says he regards any reading below 45 to be bearish for the stock market over the subsequent 12 months, while levels above 55

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