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Fasten your seat belts
After an impressive +6.3% in January, it may be difficult to imagine just how negative public sentiment was at the end of 2022. Pushed back by a market trail of -4.9% in December to end a difficult year, the consensus among Wall Street strategists painted a bleak picture for early 2023. At the same time, Bank of America reported that public outflows from equity funds reached an all-time high. Insiders, however, went to the other side of this trade and did something bold in the face of such bleak prospects: they bought their own shares. In stark contrast to the prevailing negative market consensus, we wrote in our January commentary that, historically speaking, the observed rebound in domestic sentiment was a positive near-term signal, indicating to us that the likelihood of further volatility in the decline had diminished. Our conclusion was correct.
In February, the script changed. Domestic sentiment has soured recently as the market has recovered and now public sentiment is almost exuberant. This divergent view from experts suggests it's time to turn on the fasten your seat belt sign.
Expect some turbulence ahead.
How it works
Goal:
Predictive model that measures the historical relationship between insider sentiment and the future probability of downward volatility (risk).
Insider trading activity:
An insider's stock repurchase activity filtered by proprietary metrics to clean noisy data.
Intuition:
Executive-level sentiment is an indicator of short-term financial market risk.
– Low executive sentiment suggests a high level of risk
– High executive sentiment suggests a low level of risk
Staircase:
A relationship between current insider trading activity relative to historical patterns.
– (from 0 to ∞) with a median measurement of 1
– Below 1 implies a higher than normal level of risk
– Above 1 implies a lower than normal level of risk
Frequency:
CDT updates this metric daily and has historically been subject to rapid and possibly extreme changes.
*This web page is updated monthly and only provides a snapshot of the end of the most recent month.
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. Furthermore, the submission does not constitute an offer to sell or the solicitation of an offer to buy an interest in the fund recommended by CDT, 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 purchase an interest in the Fund or related entities will be made only by delivery of a detailed Letter of Intent, an amended and restated Limited Liability Company Agreement and a Subscriber 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 jurisdictions where permitted by applicable law. You are advised not to use this information as the basis for making a securities purchase decision.
Certain information, opinions and statistical data relating to industry and general market trends and conditions contained in this presentation have been obtained or derived from third party sources believed to be reliable, but CDT or related entities make no representations that such information is accurate or complete. You should not rely on this presentation as the basis for making any investment decision. To the extent you rely on this presentation in connection with any investment decision, you do so at your own risk. This presentation is not intended to be complete on any topic covered. The information contained in this presentation is provided to the user on the date(s) indicated and CDT intends to update the information after distribution, even if the information becomes materially inaccurate. Some information in this presentation includes calculations or data that have been prepared internally and have not been reviewed or verified by any third party. Using different methods to prepare, calculate or present information may lead to different results, and these differences may be material.
Editor's note: The summary points in this article were chosen by Seeking Alpha editors.
This article was written by
CDT Capital Management is a US unleveraged equity hedge fund specializing in insider trading. With unrestricted real-time access to trading, we believe that corporate insiders routinely possess and exploit an asymmetric information advantage over the rest of the market. Our value investing approach aims to leverage this rich source of information by incorporating exceptional internal activities into the framework of CDT's investment strategy and risk management. Founded in 2017, CDT Capital Management operates in New York City.