When insiders aren't buying, look out
Now that a certain subsector has entered a kind of market Twilight Zone, you can bet that the selling is not done.
Here's something to think about. When you look at the bedraggled biotech and software-as-a-service sectors, do you ever see much insider buying? When you look at the companies that are still going public in these sectors, do you ever see any earnings?
Have you noticed that the ones going public now are either early-stage biotechs that you would never finance yourself or incredible niche software-as-a-service players for some small vertical that you would never invest in yourself?
We are truly in the Twilight Zone of these stocks, where unless there is some consolidation or some insider buying of note, or a sense that the companies think profits will actually matter someday, you can bet that the selling is not done.
Plus, while I am not a chartist, have you looked at the charts of these? They are among the most perfect head-and-shoulder patterns I have ever seen.
Worst of all, the insiders are now thinking, "OK, if Facebook (FB) shot the lights out with the best growth that's actually ever been seen since the Apple (AAPL) and Google (GOOG) breakouts, and if Gilead (GILD) could have the biggest launch ever, in history, and not go higher, how about my little software-as-a-service provider for the coffee room? How about my biotech lab that has nothing that can even be inflicted on mice yet?"
Honestly, when people call in on stocks that are speculative right now from these two areas and they want my blessing, I don't even know what to say. Gilead and Facebook are executing flawlessly, and it isn't enough. Meanwhile, UPS (UPS) and McDonald's (MCD) blow the quarters and they aren't even down. ServiceNow (NOW) delivers 60 percent revenue growth, something that would have gapped it up three months ago, and instead it rallies a dollar and then pirouettes 10 percent, even as every analyst reiterates "buy." What happens when one breaks ranks? That's been the pattern.
If you are an insider at one of these companies, aren't you calling your broker and saying, "Can you line up a basket of like-minded software-as-a-service companies and short them to hedge my software-as-a-service exposure?" If you own locked-up shares in a money-losing software-as-a-service human resources company, why not short another money-losing software-as-a-service human resources company? What's the difference at this point? You need to protect yourself and your obscene profits before they disappear into the ether.
Oh, and just to be sure, I know whereof I speak. Back in the previous heyday, in 2000, when I was locked into millions of shares of TheStreet.com, broker after broker offered me a chance to short a basket of other money-losing dot-coms as a hedge to the potential TheStreet.com losses. I didn't do it. Didn't seem right to me. But these days, when hedge funds legally run ahead of takeover bids and high-frequency traders run ahead of everyone, I guess running ahead of the selling in your own stock by shorting a bunch of analogues makes sense.
And believe me, that's exactly what's going on. Who can blame them? The supply is ridiculous. The glut is immense. The software-as-a-disservice-to-your-portfolio days are upon us. They won't let up until we see mergers and insider buying instead of pump-outs and insider selling.
That could be a very long time.
Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio to see the stocks Cramer thinks could be winners. The portfolio is long FB, AAPL and GOOGL.
More from TheStreet
Start farming or some other business and get a gun.
maybe instead of buying stock, the big boys are buying real estate.
buy something tangible. even if it looses value, it's still a rentable property
Congratulations to Holder for learning how to handle rejection better.
See, I can be nice to Democrats.
This sounds like a Goldman Sachs strategy to me. For shame.
I don't think anyone is interested in biotech start ups for the time being until we've had a few more years of ACA insurance to see better what may be covered and what may not be covered.
A $1,000.00 a pill wonder drug isn't worth much to anybody including investors.
Kudos' to the Stock Industry for rebounding:
But just like the watch that was wound to tight
" Something Has To Break"
"they want my blessing"
Ha ha ha ha........ Ooooo.... That's so funny. Anoint my choice with a funny sound bite.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The Ukraine crisis festers and other fresh concerns boil to the surface, knocking down markets and giving volatility some life.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.