Dear Fellow Trader:
Over the last year, there has been a lot to be thankful for. One of the most important things as traders is that we take the time to assess the things that help make us successful – and help give us an edge.
Today, I want to say thank you for two very simple charts that helped make my 2023 a successful trading year. And it’s my hope that they will do the same for you in the future.
I’m Thankful for The Insiders
The strongest anomaly in the financial markets is insider buying. It has been a major source of academic studies over the last 30 years. Over at Executive Payouts Unlimited, we combine momentum with insider buying to identify high-probability trades. But I don’t want to just highlight the great individual companies that we’ve exploited this year like Occidental Petroleum (OXY), Exxon Mobil (XOM), Delta Air Lines (DAL), and American Express (AXP).
I want to say thank you for THIS chart. This chart tracks the amount of insider buying to insider selling in dollars. The blue line is the five-day moving average for that reading. And as you can see, insiders were not terribly busy buying their own stocks this year… until October.
In October, we saw the strongest wave of insider buying since December 2022. And this was a very contrarian signal for investors to buy into oversold territory across the S&P 500. Since that chart experienced that top pattern in October, the S&P 500 SPDR ETF (SPY) is up more than 8.2% – helping to signal a snapback rally that stunned a lot of investors that were dumping shares last month.
This chart has served as a terrific contrarian buying signal – as executives have collectively called the bottom of many different crises over the last 15 years, including March 2009 and April 2020. If we watch this chart, we can tap into the collective confidence of the executives who know their companies best.
I’m Also Thankful for Momentum
If you’re looking for a complementary buy signal in an oversold market or a market in correction, I invite you to pay very close attention to the daily readings of the Relative Strength Index (RSI) and the Money Flow Index (MFI). Both indicators are momentum oscillators. The former tracks price strength, while the latter tracks price and volume. When the RSI is at 30 or less, the stock or index is oversold. The same goes for MFI at 20 or less.
Now, it’s a bit rare when we see both the RSI and MFI oversold at the same time. But as you can see in the chart below, when both are at that level, it becomes a buying opportunity. Both indicators hit oversold territory in March, August, and late October of this year. While everyone else was heading for the exit, those oversold conditions created opportunities to sell put spreads on stocks we want to own at a 15% to 20% discount from their current price.
On Friday, I’ll be releasing my latest trade at Executive Payouts Unlimited, and offering a full recap of the financial markets and our Equity Strength Signals. We continue to see strong insider buying across a variety of sectors like energy.
And we want to take advantage of this very special opportunity that emerged during today’s trading session.
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
