Wachovia CEO's Insider Buying Is Another Indication of a Bottom

When I look for signals of a bottom in any sector, first and foremost will be the technicals, followed by rallies on bad news.  Long before companies get back on track financially, their stock charts will have already had a big run as most of the bad news was built in.  As a distant secondary indicator, I like to keep tabs on the insider buying habits of key executives, particularly the CFO and CEO. 

These insiders know their company better than anyone and if they're making a large bet, there is good reason to assume the prospects for the company in the future are bright.  The financials have been beaten mercilessly here in 2008, with several big banks trading in single digits.  Who would have thought that a Wachovia (WB) would be trading under 10 or that a Washington Mutual (WM) would hit nearly $3 bucks a share.

Time will tell if those moves down were warranted, but many of these banks were well overdue for massive snap back rallies, and rally they did.  Many have doubled in just 5 to 6 trading days, including banking behemoth Wachovia (WB) which despite recording record losses, job cuts and a huge dividend cut, rallied again as traders bet on "the worst is over".

Also betting big on the company is new CEO Robert Steel, who took over just about a month ago to inherit a mess he must feel he can clean up.  Just hours ago, he made 3 large purchases of Wachovia stock totaling more than $10 million.  That's one heck of a gutsy move and it will probably pay off in a few years, but I always wonder what these guys are thinking when they're timing their trades.  I realize they aren't technical analysts but with that kind of money on the line, maybe you should consult with one!  Your stock has doubled in little over a week.  Why not wait a few days for the short covering to diminish and the longs to lock in their profit and save yourself a few million?

At any rate, it's a good sign for Wachovia over the long haul and financials do appear to be bottoming out, but I'm waiting for at least a 50% retracement of this move in financials to do some shopping. 

Disclaimer: No position in Wachovia, but may trade it at 10 or lower.

Comments

[AmesTiedeman]

Buy this and wait 5 years.

[Sue Fortif]

Insider buying!!! If Wachovia drops off the edge he can take a nice loss carry forward! I see his move as great for his portfolio!

[Alpha Seeker]

Trader Mark,
in your article before you were saying this is not the bottom, but now you say it is. It is clear to me that the only reason you write is to manipulate prices. Buying Wachovia now is like buying Yahoo 10 years ago. The consumer crisis is only deepening and it will take 1-2 more years for all this to completely bottom.

[nonaldehyde]

Um, yes, we know Trader Mark moves markets with his comments. C'mon now, he's a smart fellow and i respect his opinions, but get a grip.... unless he is one of those space aliens illuminati mason dudes.

As for buying and holding five years, why not deploy the $$$ elsewhere and buy it in 4.9 years?

Just asking.

[ccyork]

then again those guys and gals at IndyMac were buying stock hand over fist when it dropped to $28.

insider buying at these banks means NOTHING

Visit The Jim Rogers Project at JimRogersProject.wordp...

[venividivici]

Do not trust a single word these people say. They have got it wrong again and again and again. They are simply recruiting lemmings.

[bearfund]

Everyone said the same thing in March. Insiders aren't any smarter than anyone else; they don't know how many of their customers are going to be paying their bills 6 or 12 months down the road, so they don't know what they're going to earn or be able to pay out and they don't know how much they will have to provision and write down. Because they don't, and can't, know any of that, they act like everyone else. Their comments have been universally rosier than subsequent events justified, and their purchases have by and large cost them a great deal of money.

It's amazing how an oversold bounce and subsequent short squeeze have changed sentiment. Suddenly everyone is finding all kinds of "signs of a bottom". Traders (myself included) have made some money in the last week, that's for sure. But while the market prices of these companies have risen dramatically, their values have not changed. Fundamentally, the outlook for banks is every bit as bleak today as it was last Tuesday morning when it looked like everyone was going to zero. There is no upside in any of the good names at current prices, and the losers (like WB) will soon be candidates for short bets again.

[SPXPlus10]

the author is misleading us on "timing" the entry by presenting a logical fallacy: his premise and conclusion can't be both true. If it is the case that there will be a lower buying opportunity "in a few days" once the "short covering diminishes" and the longs lock in their profits, then as a short, it makes sense NOT to cover right now, but to wait for those "magical few days" and cover (if one is inclined) when the longs are profit-taking. But the longs are, by definition, not "profit-taking&qu... until the short covering diminishes... Either the short-covering is diminishing now (at this price, since the shorts who haven't yet covered will wait for "the few days", or the short covering will continue unabated, in which case, now is as good a time to buy as any.

Shorts are not required to cover today or tomorrow or ever (subject to available margin)(the SEC regulation enforcement may inhibit new shorts, but for existing shorts I don't think there is any new urgency).

If the shorts are agreeing with this recommendation, the "later" buying opportunity does not occur.

As for the predictive value of insider buying, consider the "wisdom" of all the ex-CEOs on wall street. Did Jimmy Cayne have knowledge "better than anyone"? For real evidence, it might be interesting to see how many "insiders" were selling Bear stock the week before the demise, and how many were buyers on that Monday ($2 offer). My guess is that those that weren't locked out - and this article fails to acknowledge that any insider who actually does have "inside" knowledge is prohibited from buying shares in the company during the "hands off" period - were no better at predicting the future price of Bear than the average investor.

[Til Tuesday]

Are you kidding???? Ken Thompson the former CEO bought 100k shares at $36 saying Wachovia was a great deal and undervalued. He was dealing with reality and neither is anyone else. How can someone on the job two weeks can get a handle on the massive problems this place has? The answer: He can't. This is the plan of the lackeys that caused the problem in the first place. He's just the mouthpiece for it. The prior CEO fell for it and he is too apparently. Words of wisdom. "A fool and his money are soon parted". Say goodbye to that money Bob. You'll never see it again.

[Randy Fay]

I agree, I am bullish LONG TERM (along with BAC)

[Bugaboo]

This is the dumbest thing on the internet today, completely absurd with little basis.

www.theinternationalfo...

[swingforthefence]

I can't believe how much this is being analyzed and ridiculed. Wachovia requires its CEO to hold 5 times their base salary. There is nothing to speculate about people.

[squashnut]

And how did he pay for it? With a loan from Wachovia most likely.

[TateDwinnell]

the key sentence here is "As a distant secondary indicator, I like to keep tabs on the insider buying habits of key executives"

[Cazimi]

I agree with squashnut, bet this was paid for with a loan from Wachovia. These guys can't put out the fire, all they can do is bottle up the smoke for short periods so things look better. Bears will ride this down again