Though the market is coming off its best quarter in 13 years, retail investors remain on the sidelines. An understandable reaction, given the market's extreme volatility over the past couple of years, and no end to the jobs and housing crises in sight.
"While stocks surged, retail investors took money out and hedge funds plowed in, posting their biggest inflows ever in March while equity mutual funds broke a two-month streak of positive flows," writes Jeff Cox at CNBC. Another trend intensified: On up days, market volume was weak -- often less than a billion shares a day on the New York Stock Exchange -- while down days saw significantly greater conviction as investors sought safety and the so-called "risk-off" trade.
"It all amounts to a pretty resounding no-confidence vote in a market that nonetheless has nearly doubled the cycle lows it saw in the dour days of March 2009," concludes Cox.
But what's surprising is the market's behavior in the face of this investor exodus -- if individuals aren't investing, then why does the market continue to climb?
One likely explanation: the meddling Fed's Treasury-buying programs. Here's how it works: The Fed purchases Treasury Bills, aka, government bonds, from financial institutions on the open market. The idea is that banks and institutional investors, now flush with cash, will then go out and buy riskier assets than T-Bills, i.e., stocks, thereby spurring liquidity. And since the Fed owns the printing presses, it has an infinite supply of money to pour into a flailing economy.
But here's the rub: For one, you run the risk of devaluing the dollar. And two, the market has pretty much come to not only expect, but rely on these supportive measures from the government.
How long the market will continue to rally is anyone's guess. What we want to know is, which rebounding stocks are being fueled by retail buying? That data is tough to find -- so we're taking our cues from the trades of company insiders. At the end of the day, they're also retail investors; and if they're using their own money to buy company stock, it's a good sign that the momentum may continue.
These insiders seem to think that the rebounds in their employer's stock is sustainable -- do you? Insider trading data sourced from AOL Money, performance data sourced from Finviz. (Click here to access free, interactive tools to analyze these ideas.)
1. Echo Global Logistics
2. Capital Bank
3. Icahn Enterprises
4. SandRidge Energy
7. AMN Healthcare Services
8. China Medical Technologies
9. Leap Wireless International
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.
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