Insider Sentiment
Insider sentiment measures the collective buying and selling behavior of company insiders to gauge their confidence in future stock performance. Bullish sentiment is indicated by net buying, while bearish sentiment shows net selling. Sentiment indicators aggregate Form 4 data into actionable signals.
The Trader's Take
The Signal
Strong bullish sentiment with cluster buys historically precedes outperformance. Sudden shifts from buying to selling can be early warning signs.
The Noise
Individual sales for diversification purposes don't indicate sentiment. 10b5-1 plan trades are non-discretionary.
Actionable Insights
- 1Focus on open market purchases as the purest sentiment signal.
- 2Look for cluster buys where 3+ insiders buy within 30 days.
- 3Compare sentiment across time periods (30/60/90 days).
- 4Weight CEO/CFO transactions more heavily than other insiders.
Regulatory Context & Context
Common Misconceptions
Insider sentiment isn't a perfect predictor—it's one input among many.
Bearish sentiment doesn't always mean the stock will fall—context matters.
Sentiment indicators should filter out non-discretionary transactions.
Frequently Asked Questions
How is insider sentiment measured?
Insider sentiment is typically calculated by comparing buy volume versus sell volume over a period (30/60/90 days), weighting transactions by size and insider role, and excluding non-discretionary trades like 10b5-1 plans.
What is bullish insider sentiment?
Bullish sentiment occurs when insiders are net buyers of company stock, indicating confidence in future performance. The strongest bullish signals come from cluster buys and large open market purchases.
Does insider sentiment predict stock price?
Research shows insider buying has historically preceded outperformance, while selling is less predictive. However, sentiment should be combined with fundamental analysis for best results.