Insider Buying in Energy
We all know that oil prices and the corresponding energy stocks have declined dramatically in the past year. The recent drop in oil prices has been similar in magnitude to the other major drops of the last 32 years, which is as far back for which I can easily retrieve the data. It is never a good idea to try to pick bottoms or “catch falling knives” as they say, but one might argue that the decline in oil prices is at least in the “seventh inning” from a magnitude standpoint. See below:
Major Oil Price Drops (Since 1983)
Generally speaking, market participants are bearish on oil on the corresponding energy companies. Looking at Exxon Mobil (XOM) as a proxy, you can see that Wall Street analysts are currently at the low end of the range in terms of the percentage of “buy” recommendations (the green bar) since the data set began in 2000:
XOM Analyst Recommendations (Since 2000)
What interests me is that in the face of plummeting oil prices, terrible fundamentals, negative sentiment and declining stock prices, insiders of numerous energy companies have stepped up and bought shares of their own stock. This is not a common occurrence. Well-known companies like Exxon Mobil (XOM), ConocoPhillips (COP), Chevron (CVX), Marathon (MRO), Apache (APA), Kinder Morgan (KMI), Occidental Petroleum (OXY), Schlumberger (SLB) and many more have all had insiders buy their stock just in the month of August. While this does not necessarily mean that we have seen the bottom of oil prices or energy stock prices, it is definitely worth noting that the insiders are now taking money out of their own pockets to buy energy companies.
August
With the S&P 500 down over 6%, August was the worst month for the index since 2012. The “flash crash” of last week was mostly erased by a strong bounce, moderating the fears of the investing public. If anything, the bounce encouraged people to jump back in and “buy the dip.” Looking back since 1978, the S&P 500 has experienced forty monthly declines of over 5%. 19 of these declines were followed by another down month, so what September holds (at least by this measure) is a coin toss. This said, volatility tends to beget further volatility and I as I type this, the Dow is down over 400 points. I would anticipate that September will be characterized by additional strong market moves in both directions.
GDP
Although this news was minimized due to the market volatility last week, Q2 GDP came in fairly strong at 3.7%:
Annualized GDP since 1990 (Quarterly)
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