Amazon Tanks, and We Saw It Coming

Plus, how to trade like the insiders...

Posted August 2, 2021

Dear Outsider,

Just when you thought this pesky little virus had run its course, our keepers in Washington are telling us to mask up again.

It turns out yet another strain of the virus, the B.1.621 variant, is spreading across Florida. That’s in addition to the Delta variant we’ve been hearing so much about.

We’ve known from the start that mRNA viruses mutate and there will likely be countless mutations, which is one reason I don’t believe just one vaccine can cure this mess, hence my initial hesitancy to even get the vaccine. Luckily, I’m “fully” vaccinated, although that may change here soon if we need booster shots.

The back-and-forth guidance from the CDC along with China’s crackdown of its own tech companies and inflation worries are contributing to the lackluster performance of the markets, even when the FAANG+ stocks reported stellar earnings last week. 

Speaking of lackluster, Robinhood (NASDAQ: HOOD) went public last Thursday and dropped roughly 10%. This was to be expected, however, as most initial public offerings drop in value because initial shareholders take profits. 

Amazon (NASDAQ: AMZN) cratered too, with its value dropping nearly 10% — something I predicted would happen last June because of Amazon’s antitrust violations. Investors will likely buy the dip, so you can decide whether now is a good buying opportunity for you.

Many investors use Amazon as a barometer for the overall health of the market, so this isn’t looking great. But as we like to say at the Outsider Club, where there’s a crisis, there’s opportunity.

And if you’re anything like me, you search high and low for proven, reliable indicators that allow you to outperform the broad market. It’s one of the reasons you read our daily missives. We’re always looking behind the curtain to find the best moneymaking opportunities for you.

A Power Play

Now, one of the most reliable indicators I’ve found is insider trading.

But before you think I’m pulling a Martha Stewart, don’t get too excited. She’s a great crook, ahem... cook, and I know some of her recipes by heart... but she’s not so great at understanding the rules of the stock market. Yes, the market has rules, and the insiders must follow them or face felony charges. 

Insiders — CEOs, directors, high-level executives, and those owning 10% or more of a company’s assets — cannot trade stock based on material, nonpublic information. That’s information that hasn’t been disseminated to the public and could give someone an unfair advantage in the marketplace.

If you’ll remember, in Martha Stewart’s case, she owned nearly 4,000 shares of the biopharmaceutical company ImClone and sold her shares just before the price dropped 16%. Was Stewart a market wizard? The Securities and Exchange Commission thought not... 

When questioned about the sale, Stewart misled federal investigators, but she couldn’t hide for long. It came to light that her broker at Merrill Lynch, Peter Bacanovic, was in bed with the insiders at ImClone and advised Stewart to sell all her shares when the top brass found out its recent cancer drug did not get FDA approval (this information had yet to be released to the public). Insiders believed this would tank the share price, and they sold millions of dollars’ worth of stock.

Stewart maintains she was just acting on information from her broker and had no idea about the nonpublic information, but where there’s smoke, there’s fire. And if you’ll remember, she was actually never convicted of insider trading, just obstructing justice and securities fraud. The CEO of ImClone, however, did get sentenced to more than seven years for insider trading.

Riding Their Coattails

The funny thing is insider trading is not illegal at all if you follow the rules. It’s perfectly legal for insiders to trade their own stock. And if you know where to find these trades, you stand to profit alongside the insiders. Most of the time, you can pay less than they do for their own stock!

As the saying goes, insiders sell for any number of reasons, but they buy for only one reason: if they believe the stock is going up. Afterall, who has a better understanding of the future prospects of a company than those involved in the day-to-day operations of the business?

Luckily for us, all insider trades are made available to the public through a Form 4 filing with the SEC. You can see who’s buying, how many shares are bought, and at what price.

But I would never recommend trading based solely on insider information. Not to mention, insiders are notoriously bad at timing stock prices. Insider buying is a good starting point, but I’ve found that on average, prices trend down following insider buys. 

As insider buying never tells the whole story, you need to dig deeper. And I’ve found there’s a small window of opportunity that provides the best entry point. If the right mix of catalysts comes together, you stand to make consistent, reliable profits.

This is something I’ve been cooking up and am excited to share with you in the coming months, so stay tuned...

Crypto Market Update

Bitcoin rallied briefly last week to more than $40,000, the first time it’s passed this level since June. Some say a short squeeze on Bitcoin derivatives triggered it, but I say it rose on speculation that Amazon would be accepting the coin as payment this year and creating its own cryptocurrency in 2022, claims that have since been debunked. However, Amazon is developing a crypto strategy by hiring a blockchain expert, but it remains to be seen what that really means.

As a heads-up, I’m hearing chatter that the market could rally in October this year, so if you’re holding, keep your eyes peeled.

Stay free,

Alexander Boulden
Editor, Outsider Club

After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

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P.S. Investing should be an adventure, not a bore. If you missed the launch of The Adventure Capitalist service led by Jimmy Mengel, you can get all the details right here. As Earl Nightingale said, “No man can get rich himself unless he enriches others.” So make sure you follow Jimmy as he takes you around the world and finds the best companies worth your investing dollars. I even hear he’s interviewing a former NBA superstar this week about an exciting new company... Don’t miss it.

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