Photo by Michal Lomza on Unsplash
I recently watched a video where a computer scientist and entrepreneur CEO was selling a software tool that provided pre-market indicators. Wow, get the checkbook because his new software would show this early-warning indicator and you were almost guaranteed a huge win on an options trade. And, in this case, he’s selling this because they expect the stock market to keep diving and guarantee wins on put options trading will bring educated traders money while investors brave the climate and lose all the life-savings. I was excited about this software.
No checkbook nearby, I did learn that all publicly traded companies must report insider transactions within 2 days, i.e. stocks on the books that they as officers might acquire or dispose of in writing (Form 4). Now when you start a company you may assign yourself 100,000 shares of Acme Corp (ACME) at a zero valuation. This week you may know that your ACME at 245.35 a share is not going to hold. You need a little spending money in pocket in case your cash position gets a little tight. You take, and pay close attention to this, 80,000 shares at 245.34 as a D or Dispose on a Form 4 and send the SEC notification that you’re removing $19,627,200 in capital from your ACME company. You sent the Form 4 because you had to, by law. Most of the general public won’t see your shameful act, educated traders will.
I closed that video I was watching and went to the bad-ole’ AI playground available to us now at https://platform.openai.com/playground. I started asking questions, “How does the SEC share information with the public? Can I access the EDGAR database online? What exactly is the SEC Form 4? Is there a REST API for the EDGAR database? Is there any API for the EDGAR database?” I was blown away by what I found. I found a well-known company, and CEO, in the US that filed a Form 4 disposing of 6 million dollars of his common stock Friday, March 10, 2023. Yes, Chicken Little thought the sky was falling, but some really big companies are cashing in now and while they’re not sending news wires, we could take advantage of these perfectly legal insights.
Something clicked for me recently and I no longer carry domestic or international managed funds and bond portfolios. I am no longer investing but I am trading. And I will continue to trade through my actual retirement. I will use the pre-market indications I find to trade options because they don’t require intense monitoring and I can manage them via a cell phone or laptop. For those that are unfamiliar with options trading, the trader is purchasing a right to buy or sell a security without having to hold positions in that security. The trader is speculating on the rise or fall of the security and making a profit when her speculation is in-fact correct.
Knowing of this financial movement within companies can tell us a great deal about upcoming moves and even insider sentiment. And, the best part of this knowledge is that it’s required by law and made available to the public within 2 days of such transactions.
I will provide two scenarios that are my opinion only but show possible future movement in two directions:
A CEO of a very well-known consumer retail corporation purchased $1,010,756 in his own common stock on 3-10-2023. His company headquarters in are in a somewhat rural Virginia city. If he is betting on his own company to such a degree then I am going to respect his sentiment and probably bet on his stock going much higher in the next few weeks and after March 22, 2023 when the Federal Reserve provides the new interest rate increase.
My second find is another well-known electrical infrastructure company with a Vehicle Group(?) that submitted a Form 4 on 3-10-2023 by the VP of the vehicle group where he sold off (cashed in) $445,650 in common stock. My assumption is that the vehicle division of this tried and true American electrical component manufacturer is going away. And, while just an assumption, the VP will be putting #lookingforwork on LinkedIn very soon. I don’t however, see the stock rising in value in the near term, but I expect the stock value to fall with the others in lock step with the common indices.
Each scenario is a guess in longer term direction as compared to the charts. I do however, think the guesses that can be made from the actions of insiders will tell a common sense story as to upcoming events that haven’t reached the historical charts or the trading indicators.
P.S. I’ll be trading on the two scenarios above if things go as planned and I will follow up with a posting after I close out of the trades.