A Lesser Known Indicator

Most of the indicators I use are well known, but I also use a lesser known method to assess the state of market. Other than TrimTabs I don't know many who look at the supply and demand equation for stocks based on what corporations are doing. Corporations could buy stock via repurchases and cash M&A or they can sell stock via IPOs, secondaries or option exercises. When the former is greater than the latter corporations are a source of demand for stocks and vice versa.

The supply and demand equation for equities continues to be a feather in the bulls' caps. I have mentioned numerous times the recent record setting amount of share repurchases and the decent level of cash M&A. Generally, when we see a 25% runup in the market the bankers start rolling out all kinds of secondaries and IPOs. However, given the favorable environment the secondary and IPO calendar has been pretty bare. Insiders have been selling at a brisk pace but probably not brisk enough to make up for all the repurchases and cash M&A.

Tracking the supply and demand for stocks from corporations was a big reason I was confident in backing up the truck late this Summer and Fall when everything looked bleak. This indicator continues to look beneficial to the bulls and in my opinion is a large reason the market has been able to rally so strongly. This does not preclude a correction as the market is stretched but as long as this indicator stays as favorable as it is unlikely we will see a bigger decline, barring a systemic event.

9 comments:

Aaron Boone said...

Hey Tsachy,
Do you pay for this info through trimlabs?  Or is there a good source that aggregates this data?

Tsachy Mishal said...

Trim Tabs costs in the thousands of dollars. I read the book that TrimTabs founder Charles Biderman wrote but dont pay for the service. I follow the data via various services. The Wall Street Journal Markets Data Center has a listing of IPOs, secondaries and completed secondaries released every Friday. TheOnlineInvestor has a free listing of M&A and recent repurchase announcements. SentimenTrader has insider data as do various other sources. S&P announces total repurchases as well on a quarterly basis.

I look at all of these to get a sense of what corporations are doing.

ralph braseth said...

Really appreciate your homework. Thank you.

Tsachy Mishal said...

Thank you. I appreciate the kind words.

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[...] Where are all the IPOs and secondaries?  (Capital Observer) [...]

What’s It Going To Take said...

[...] Sentiment is still in the danger zone but the bulls do have some important tailwinds at their back. I discussed corporate supply and demand yesterday. Many prepared for another 2008 this Fall and that has left many underinvested. I would really like [...]

Thursday links: a zero sum game | Abnormal Returns said...

[...] The supply and demand situation for shares is still favorable.  (Capital Observer) [...]

Liens Jeudi : Gerer la crise said...

[...] The supply and demand situation for shares is still favorable.  (Capital Observer) [...]

A Change In The Supply/Demand Equation said...

[...] A few weeks ago I wrote about how I measure the supply/demand of stock from corporations. At the time the equation favored the bulls. This seems to be changing. The chart below from Thomson Reuters via Barron’s shows that insider selling has picked up steam recently. [...]