Themes: stocks, insider buying, currencies, cash, gold
Dear Reader,
“I don't know where the money is coming from to keep the markets from plunging.”
– Charles Biderman, CEOofTrimTabs Investment Research
Neither do I.
Recent history tells us that September is not always a kind month to stocks and we’ve just been given another reason to be fearful. It’s to do with insider buying, or rather, the lack thereof.
By insider buying, we mean the buying of a company’s shares by its directors, executives or other employees. And it has fallen to a virtual standstill.
According to Charles Biderman, quoted above, the insider buying-to-selling ratio was at a level of 30 times in August. That means there is 30 times more selling of stock than there is buying. This is a bearish level that the TrimTabs chief has never seen before.
And we’re not just talking about directors selling their company’s shares. It’s worse than that. TrimTabs’ data tracks corporate buying in all its shapes and sizes — from director dealings to buybacks to mergers and acquisitions. As Biderman said recently in an interview with Bloomberg news, “ Companies are saying they don’t want to buy stock at any price.”
This is a stark warning from a reputable source with access to the most comprehensive data in the market. As a risk-savvy investor, you should consider a safe haven play very soon…
Anything but stocks
Here are our top three tips for where to put your money as we enter potentially the most dangerous month of the year:
- Cash
- Safe haven currencies
- Gold
Firstly, cash. Cash was very fashionable late last year when banks were failing and markets were collapsing. However this time it would be more “excessive prudence” than sensible risk management. In a zero interest rate environment, the only benefit of cash is zero transaction costs and that it can be easily re-invested in other asset classes when the time is right.
“Safe haven” currencies are another well-trodden bear play. The currencies of the world’s two largest economies – Japan and the US – have both tended to rally when sentiment worsens. Investors sell out of riskier currencies like the New Zealand dollar and into the dollar and the yen when things get scary. However, it’s a difficult play for retail investors to access and the outlook for the dollar is too mixed to warrant buying at these levels.
Of course, no discussion on safe havens is complete without the obligatory mention of gold. To the uninitiated, Gold is an odd proposition. It’s not particularly useful as nearly three quarters of commercial usage comes from a contracting jewellery market – in the developed world jewellery demand fell 13%. Unlike a stock gold cannot promise “cost cutting synergies” or “merger opportunities”. It doesn’t even pay a dividend. However, what gold is very good at is preserving value.
And, for followers of technical analysis – chart reading – gold is in a very interesting place right now. The price of gold is in what is known as a “shrinking triangular” pattern that could potential break up to $1032 – the previous Dollar-price high in 2008.
So, with these options at your disposal, which to go for and when to buy?
When do we make the switch?
To be clear, the fact that we are seeing insiders selling more than they are buying is not in itself a reason to sell all of your stocks.
We don’t recommend completely exiting stocks. We’ve spoken of the merits of defensive blue chip shares on various occasions and this argument stands. Companies like BP, AstraZeneca and Imperial Tobacco will continue to trade well even in the light of a likely market correction.
And whilst you continue to hold your shares, then there is an excellent way to “insure” your portfolio, too. We call it the “hidden index” and it goes up when stock markets go down. Yesterday, for example, when the American stock market fell by nearly 2%, this index ROSE by 12%! And last year it went up 189% as markets crashed. Click here to see why this market could rise 70% in the next 5 months and how you can profit from it.
Apart from this hidden index, of the three safe haven plays numbered above, gold is the most timely. However, this is an asset that has already seen a lot of upside in the past couple of years. If you don’t already own gold, I would view the “shrinking triangular pattern” as a trading opportunity rather than a reason to buy for the long term.
If you already hold some, do nothing.
If you don’t, get some. But make sure it’s easily tradable. Though typically an advocate, I would not recommend buying physical gold for a short-term trade. Consider ETFs. You can do this by buying the ETF Securities PHAU ETF listed on the LSE.
Gold has many merits. However, this time around it’s not inflation or currency devaluation we’re protecting against, it’s more urgent than that. We see it as a short-term way to profit in what looks set to be a grizzly month for investors. The insider selling tells us that it’s time to act now.
Best wishes,
Theo Casey
For The Right Side
P.S. If you don’t fancy shifting into any of the three suggested “safe haven” plays, at the very least you should consider insuring your portfolio. The best way to do this is with the “hidden index” I mentioned earlier. To find out how to use this to protect yourself and even profit from the likely stock market weakness in September, read here.
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
