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Aggregate Insider Activity in May Shows Strong Shift Towards Buying

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As the market experienced a broad decline in May, we highlighted a partial-month spike in our aggregate insider trading metric as insiders shifted heavily towards buying. As also mentioned in an article on Bloomberg News, partial-month data for May showed more insiders buying than selling in the month for the first time since March 2020. Now that we have full-month data for May, where did the insider ratios end up last month, and are insiders still signaling optimism?

As shown on the graph below, the ratio of insiders buying to insiders selling dipped to 0.97, which still represents the highest level since the height of the pandemic sell-off.  In total, 1,540 insiders purchased in May, which is the highest number of purchasers since 3,126 insiders bought in March 2020.

The ratio of companies with buying to companies with selling finished closer to its partial-month metric, as the ratio dipped from 0.95 to 0.93. The 850 companies with purchasing activity also represented a two-year high, and was last surpassed by the 1,305 companies purchased in March 2020 (see graph below).

Why did both insider ratios move back towards selling after we published our partial-month analysis on May 20? As shown on the charts below, the daily ratio of insiders and companies moved back towards historical averages once the market rebounded somewhat at the end of the month. While the selling at the end of the month may have caused the full-month data to come in slightly lower than the partial-month data, the spike in aggregate insider purchasing in May should give investors some confidence in the market's fledgling recovery. Investors may want to keep a close eye on the ratios of aggregate insider activity going forward, as a sharp shift in either direction could add evidence of either a continued rally, or that the market is headed towards another sell-off.

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The Washington Service Research Team

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