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Among insiders, only REITs gain popularity as markets slide

FRANK GUNN/THE CANADIAN PRESS

Corporate insiders aren't rushing to snap up Canadian stocks after last week's pounding, a sign that even those investors who buy and sell shares within their own businesses are feeling a little sick to their stomach right now.

"In general, insiders appear to be signalling that risks are rising," Ted Dixon, CEO of INK Research, told Inside The Market this morning.

Often, during big market pullbacks, insiders start ramping up their buying in anticipation that share prices are only on the decline in the short term and bargains may be appearing.

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That's not the case right now, according to INK Research, which monitors insider transactions. Its sentiment indicator of TSX-listed stocks stands at 172.9 per cent. That's a little lower than the 178 per cent a week ago. At the end of May, it had reached levels of over 200 per cent, which would mean there were more than two stocks with key insider buying for every one stock with selling.

The indicators represent companies with buy-only transactions divided by companies with sell-only transactions of direct ownership equity securities in the public market by officers and directors over the last 60 days.

The higher the number, the more insider buying. Several research papers over the years have concluded that investment decisions by insiders have a greater degree of predicting market moves than the general population.

Should the INK TSX indicator slip below 100 per cent, "it would suggest that insiders are signalling that the chances of a significant stock market rebound are unlikely over the summer," Mr. Dixon said.

There is one exception, however. Insiders are very bullish on real estate investment trusts right now. That's despite a surge in bond yields, which in recent days has had REITs under considerable pressure because their payouts are less attractive in a rising interest rate environment.

"In the real estate area, the 30-day REIT indicator is currently 800 per cent. The 60 day is 633 per cent. Those levels are very high and suggest insiders are taking advantage of the recent interest-sensitive sell-off," Mr. Dixon said.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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