By now, you probably know how I feel about coronavirus and the stock market crash that it has caused.
I see it as a tremendous buying opportunity—a once-in-a-decade level event.
I’ve created a detailed analysis of past such crises, explaining why that is so, which you can read here.
In that article, I explain how every time the situation looked hopeless, the market recovered sharply afterward.
Surprisingly, the catalyst that turned the market around in each case was a big announcement from the Federal Reserve.
This was the last missing puzzle piece in the crash we’re experiencing at this moment.
And yesterday, it finally appeared.
Fed Initiates The Nuclear Option
In the headline of this letter, I promised to reveal one indicator signaling it’s time to buy stocks.
I’m not going to do that… Instead, I am going to reveal two indicators.
The first is something I talk about all the time.
It’s liquidity…and you can read more about it here.
In short, central banks pumping liquidity into financial systems are the ultimate drivers behind stock market returns.
This chart makes the point.
Impactful as these may have been, they’re nothing compared with what the Fed announced yesterday.
It launched a nuclear option called “QE infinity.”
Historically, the central bank has always placed a limit on the amount of liquidity it would provide.
Now, the Fed governors are saying they’ll buy whatever is necessary.
Given the severity of the crisis, it’s difficult to imagine what that will be, but I think it’s safe to say it will be a lot more than in previous cases.
Either way, it can mean only one thing—that the stock market is about to embark on an epic rally.
Follow The Smart Money
Between the massive liquidity coming our way, and the analysis of previous stock market crashes, I’ve given you plenty of reasons to be bullish.
Now I’ll give you one more.
Investing when there is blood in the streets takes courage.
And, as with any difficult endeavor, it helps when you don’t have to face the fears alone.
I’m investing like a madman right now… as you’ve probably guessed.
What you may not realize, however, is that a group of people far smarter than me are doing the same thing.
I’m talking about managers of large corporations.
This is an important indicator. Insiders are close to all the vital information. Analyzing their actions can help you predict where share prices will move next.
Of course, insiders sell their shares for many reasons that have nothing to do with the direction they believe a stock is moving—to buy a house, for example, to pay for their kids’ college tuition, or to extend their expensive golf club memberships. So I wouldn’t advise you to use insider activity alone as a Sell signal.
However, when they’re buying, it’s for one reason and one reason only—because they believe the company will be worth a lot more in the future. When they buy, you can, indeed, take that as an excellent Buy signal.
Which brings me to the indicator I want to talk to you about—the buy/sell ratio. It compares insider purchases with insider sales.
What’s most interesting to me about this chart is that it shows that, in the last 15 years, insiders have been buyers more than they’ve been sellers only four times—during the Great Recession in 2008 and 2009, in 2011 when Standard and Poor downgraded the U.S. credit rating, at the end of 2018 (although that moment was brief), and today.
Each time, they were right to be buying rather than selling. The markets rallied afterward.
And they’re going to be right again.
I suggest you follow their lead.