CDT Insider Sentiment Ratio – December 2022: Above Normal Sentiment

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Originally posted on January 4, 2023

Free to Move About the Cabin

For the month of December, Santa Claus delivered a lump of coal for investors. After rallying +8.1% and +5.6% in October and November respectively, a continued move higher in December seemed indulgent – insiders agreed. Ahead of the fall rally, insider sentiment spiked in anticipation of the moves higher in October and November, then fell precipitously before the December slump (-5.8% as measured by the S&P 500 Total Return Index). Now, insider sentiment is back on the rebound as executives from all corners of the market opportunistically bought shares in December. Guided by the predictive power of insider activity, we believe that the recent uptick is a positive near-term sign that the probability of further downside volatility has diminished.

Entering 2023, the relative optimism of company insiders lies in stark contrast to grim predictions of top Wall Street strategists. On the Street, the current consensus is for an impending earnings recession to put pressure on equity markets in the first half of the year. For now, insiders are begging to differ.

How it Works

Objective:

Predictive model that measures the historical relationship between insider sentiment and the future probability of downside volatility (risk).

Insider Trading Activity:

Purchase activity of an insider’s own stock filtered by proprietary parameters to scrub noisy data.

Insight:

Executive-level sentiment is an indicator of near-term term financial market risk.

– Low executive sentiment suggests a high level of risk

– High executive sentiment suggests a low level of risk

Scale:

A ratio of current insider trading activity in relation to historical patterns.

– (0 to ∞) with a median measure of 1

– Below 1 implies an above normal level of risk

– Above 1 implies a below normal level of risk

Frequency:

CDT updates this metric daily and historically been subject swift and possibly extreme shifts.

*This webpage is updated monthly and provides just a snapshot of the most recent month-end.

Disclosures

This presentation does not constitute investment advice or a recommendation. The publisher of this report, CDT Capital Management, LLC (“CDT”) is not a registered investment advisor. Additionally, the presentation does not constitute an offer to sell nor the solicitation of an offer to buy interests in CDT’s advised fund, CDT Capital VNAV, LLC (“The Fund”) or related entities and may not be relied upon in connection with the purchase or sale of any security. Any offer or solicitation of an offer to buy an interest in the Fund or related entities will only be made by means of delivery of a detailed Term Sheet, Amended and Restated Limited Liability Company Agreement and Subscription Agreement, which collectively contain a description of the material terms (including, without limitation, risk factors, conflicts of interest and fees and charges) relating to such investment and only in those jurisdictions where permitted by applicable law. You are cautioned against using this information as the basis for making a decision to purchase any security.

Certain information, opinions and statistical data relating to the industry and general market trends and conditions contained in this presentation were obtained or derived from third-party sources believed to be reliable, but CDT or related entities make any representation that such information is accurate or complete. You should not rely on this presentation as the basis upon which to make any investment decision. To the extent that you rely on this presentation in connection with any investment decision, you do so at your own risk. This presentation does not purport to be complete on any topic addressed. The information in this presentation is provided to you as of the date(s) indicated, and CDT intends to update the information after its distribution, even in the event that the information becomes materially inaccurate. Certain information contained in this presentation includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results, and such differences may be material.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.