AFMC - CDT Insider Sentiment Ratio - May 2023: High Sentiment

2023-06-06 11:30:00 ET

Summary

• For the month of May, insider activity reaccelerated in a very pronounced way, and the sector breadth of the activity was very impressive.
• During the month, extraordinary transactions were found in almost every sector of the market, and that is a very exciting development.
• The burgeoning AI craze went high-gear in May, which could be driving the activity.

Free to move about the cabin

For the month of May, insider activity reaccelerated in a very pronounced way, and the sector breadth of the activity was very impressive. During the month, extraordinary transactions were found in almost every sector of the market, from automakers to aerospace & defense to cybersecurity to pharmaceutical companies, and that is a very exciting development. For the first time in at least a year, value is the rule and not the exception. What is driving the activity? We think it is AI.

In May, the burgeoning AI craze went high-gear. The excitement was prompted by a significant beat on Q1 earnings/forecast for AI titan Nvidia ( NVDA ). Prior to this earnings release, the excitement around AI was palpable, but the report was the first real taste of the financial potential for the next-generation technology and the market is now ravenous. But just like any other resource, investor capital is finite, at least in short periods of time. That means that the capital being absorbed into AI companies, namely the top 5 companies in the S&P 500, are being fed by new investor flow or existing sources. That leaves a lot of companies with no product offering, but favorite prospects left behind. As the market continues to explore its infatuation with AI, at these left-behind companies insiders are identifying and acting on mismatches between their current stock market price and the intrinsic value of their business. Although banks remain the standout sector for insider activity, other notable company transactions included Pfizer ( PFE ), CVS ( CVS ) and General Motors ( GM ).

Expect blue skies ahead.

How it Works

Objective :

Predictive model that measures the historical relationship between insider sentiment and the future probability of downside volatility (risk).

Insider Trading Activity:

Purchase activity of an insider’s own stock filtered by proprietary parameters to scrub noisy data.

Insight:

Executive-level insider sentiment is an indicator of near-term financial market risk.

- Low executive sentiment suggests a high level of risk

- High executive sentiment suggests a low level of risk

Scale:

A ratio of current insider trading activity in relation to historical patterns.

- (0 to ?) with a historical median measure of 1

- Below 1 implies an above normal level of risk

- Above 1 implies a below normal level of risk

Frequency:

The measure is updated daily and historically been subject to swift and possibly extreme shifts.

*This webpage is updated monthly and provides just a snapshot of the most recent month-end.

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. Additionally, the presentation does not constitute an offer to sell nor the solicitation of an offer to buy interests in CDT’s advised fund, 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 buy an interest in the Fund or related entities will only be made by means of delivery of a detailed Term Sheet, Amended and Restated Limited Liability Company Agreement and Subscription 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 those jurisdictions where permitted by applicable law. You are cautioned against using this information as the basis for making a decision to purchase any security.

Certain information, opinions and statistical data relating to the industry and general market trends and conditions contained in this presentation were obtained or derived from third-party sources believed to be reliable, but CDT or related entities make any representation that such information is accurate or complete. You should not rely on this presentation as the basis upon which to make any investment decision. To the extent that you rely on this presentation in connection with any investment decision, you do so at your own risk. This presentation does not purport to be complete on any topic addressed. The information in this presentation is provided to you as of the date(s) indicated, and CDT intends to update the information after its distribution, even in the event that the information becomes materially inaccurate. Certain information contained in this presentation includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results, and such differences may be material.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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