Where to Make Money in the Markets Today

Posted by Chris Mayer - The Daily Reckoning

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11/03/10 Gaithersburg, Maryland – So where to look to make money in today’s market?

What I often do is just look for extremes. I look for areas of the market where the rubber band seems stretched. These are usually good places to look for making money as you play the snapback of that rubber band. It doesn’t always work. Sometimes the rubber band breaks. But it’s a fairly reliable way to make good money in markets.

Today I have a few extremes that I’d like to set up for you. Each of them leads to a potentially profitable idea.

The First Extreme: Insider Sales.

I always troll the insider buys and sells. It’s a great place to get ideas. When I see a big insider lay down a big bet on his own stock, that usually makes me want to take a look at why. Insiders buy for only one reason: They think the stock is going to go up.

Insider selling is not as reliable. There are always more insider sales than buys. Insiders sell stock for all kinds of reasons – diversification, for example. They also typically get a lot of stock options, which they naturally cash in from time to time.

However, what we’re interested in is the extremes. We’re not interested in modest insider buys or modest insider sells.

Today, we see extreme selling. In fact, the ratio of insider sales to insider buys is over 30 times. Normally, a ratio of over 20-to-1 is seen as a bearish sign. A ratio of under 12-to-1 is bullish. It’s not a bad indicator – or at least it’s been pretty good this year.

Last time we had an insider sales ratio of over 30 times was in April, just before the markets.

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