Corporate executives, directors, and large investors are all deemed insiders by regulators, and have to file their trades with the Securities and Exchange Commission. Insiders have to file by the end of the second business day following the trade, and investors can track these trades at Search for filings of type Form 4. What should you watch for?
Sizable trades. When an insider sells a large percentage of his total holdings, it may mean the stock is likely to move down, not up.
Sector bets. You can turn bearish on an entire industry if insiders sell at several companies. This may happen after a rally in that industry, in which case the insider sales are a signal to take profits.
Trend following. Most insiders buy when they feel their stock is cheap and sell when they think shares are expensive. When investors do the opposite (sell if their stock has already fallen or buy after it goes up), it can be an even stronger signal.
Generally, insiders’ purchases are more significant than sales. Purchases are rare because most insiders are paid partially in stock and will eventually sell their shares. (The exercise of stock options may count as buys.) Heavy insider buying or option exercising may be a strong bullish sign.
