What to Do When Insiders Exit

Updated from 11:09 a.m. EDT

This was originally published on RealMoney on March 13 at 9:00 a.m.

This has been a great market for daytraders and Warren Buffett. Daytraders must be feasting on the volatility, and Buffett's honest-to-gosh long-term investment horizon allows him to sleep easily even if an opportunistic buy falls another 20% in the near term.

But for anyone in the money management biz needing to keep clients happy on a monthly and quarterly basis, the market has been downright evil. There have been few trends in U.S. equities that have worked for longer than a week or two, and it's been outrageously easy to see a perfectly good bet turn sour overnight.

There is one obvious months-long trend that I think seems a good bet to continue, however. Despite Tuesday's boffo price gains, I still think indices are more likely to be lower a couple months from now than not. So I'm still leaning bearish in the near term.

I started acting more bearish last Christmas. Since then I've made 16 new recommendations in my InsiderInsights newsletter. Thirteen have been shorts, and 12 of those shorts have been profitable. The one short that went against me has only cost me 2.0% so far, while the winning shorts have averaged a 20.1% gain. And that stat was calculated after Tuesday's bullish fireworks. On the flip side, only one of my three new longs since Christmas has gone my way.

So it's obvious that leaning bearish has been paying off, and I think the odds are high that the profits from shorting aren't played out yet. While Tuesday's rally was absolutely impressive, so was that two-week leg up we had back in January. That oversold rally was given extra fuel by short-covering, and it was still stopped dead when indices bumped their heads on their respective 50-day moving averages. That's about as simple a resistance metric as it gets, and the failure to breach it highlighted the larger downchannel indices still appear to be in.