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From the last week of October to the first week of November the market rallyed by over 20%. Directors were actively buying, outnumbering sells by at least 5 to 1, a huge sentiment change given that the status quo for directors transactions is generally between 1 and 1 1/2 (buys) to 1 (sells). See October 30th ‘Directors ARE buying shares’

So what happened in November?

 Directors interest waned, and the ratio of buys to sells dropped from above 5 in October to around 2.75 in November (source : Digitallook.com). This is still a hugely positive number. But anecdotally, looking at recent directors transactions, the level of activity in December has fallen away, probably in line with general stock market activity given what my friends in the industry have been telling me.

Fear not though. In late 2002 early 2003 it took almost eight months for early directors buying signals (4:1 buys to sells in August 2002) to result in a convincing change in direction for the market.

We experienced ratios of 4:1 (August ’02), followed by 3:1, 1.5:1, 2:1, 5:1 (December ’02), 1.5:1, 2:1, 2:1 (March) before the market started to turn. (source: Digitallook).

What I suppose I am suggesting is that the 5:1 signal of October is the beginning of the end. You’ll probably see 2-4 significant market setbacks, accompanied by Directors buying activity, before the wider market builds up confidence.

You want me to put a date on it? Why not. Nobody else out there has a clue what’s going on.

Put your money to work in Equities between now and Easter, and be prepared (or don’t be surprised by) to take advantage of a further 20% fall in the market before then.

Directors Buying signalling market bottom?

I was surprised on Friday to see such a turnaround in directors sentiment ‘Directors ARE buying shares. Buys outnumber Sells 10 to 1’.

Data on Directors Dealings from Digitallook (site here) showed that over the month of October Directors Buys in the FT 350 companies outnumbered Directors Sells by almost 10:1.

This is a sharp change from data I ran on October 10th, which showed Buys and Sells at similar levels for the prior month.

Is this a turning point for the market? What is the precedent?

I used the Digitallook Screening Tools product to screen for Directors buys over GBP 50k, and sells over GBP 50k, and looked at the market turn in early 2003, when the FTSE rallied by 1/3rd in 12 months.

Through 2002 and 2003 Buys to Sells are in the ratio of between 1:1 and 2:1 for most of the month periods analysed.  In August and September 2002 this jumped to 4:1 and 3:1 respectively, then fell back to 1 1/2:1 and 2:1 for the following two months.

In December 2002 the Buy to Sell ratio popped up to 5:1, and the market didn’t look back for 30%, rallying 900 points to 4500 over the next twelve months. 

The ratio of Directors buys to sells dropped back in January, but was consistently in the 1.5:1 to 2:1 range for the subsequent six months. 

Is it time to buy the market now? All I can say is that investors today have substantially less confidence in the information available with which to make investment decisions. With this information vacuum, I believe that Directors Dealings play a more substantial role in telling us what is going on inside companies.

UK Engineers. 30 Directors buying shares.

The market killed the UK Engineering stocks on news of dismal results and orders in the truck and autos sector, and also justified concern that expansion at mines and oilfields will be delayed, trimmed back, or pulled completely.

So it is with interest then that we’ve seen, over the last two weeks, a substantial number of directors buying shares in GKN, IMI, Weir, John Wood, Bodycote, Laird and Senior.

I don’t know much about these companies, but I do know they are often the world leaders in their product areas, that historically they have been pretty good at generating cash, and have also attracted bid attention in the recent past (Bodycote).

And I also know that the 30 directors who have bought shares know a lot more than me about the valuation of their businesses.

For all comments by followthedirectors over the last week on the companies mentioned above see here.

Misys CEO Buys $350k stake in Allscripts.

If you are a Misys investor you should ask your broker about Allscripts (MDRX). Is Allscripts a cheaper way to buy a faster growing portion (Medical) of Misys’ business?

CEO of Misys, Mike Lawrie seems to think that Allscripts is the way to go. He has invested $350k in the group (our comment here). Misys now own more than 50% of the company which has 60m shares outstanding. Bloomberg show a short position of 6m shares, so this could prove to be rather interesting in both the near and long term.

Carnival dividend cut.

I wondered how long the bad news would take to come out of Carnival, the cruise business. They have suspended their dividend, saving $1bn + a year. 

In June and August the CEO and COO took $4.5m out of the company. CCL is down 23% since our comment of August 5th ‘Chilling out or downside risk’, underperforming the FTSE by 5%. I suspect we’ll see further negative comment on bookings over the next few months.

 

Disclosure: The author has positions in Misys, Weir, IMI, Senior, Laird, Bodycote, John Wood.

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