NEW YORK ( TheStreet) -- Investors sitting on the sidelines during the latest rally in stocks should have taken a look at insider buying patterns last summer and dipped their toes in the market as a result, according to a new report from Insiderscore.com, which tracks trading by corporate executives. Insider buying activity is a much better indicator of when an investor can catch a coming bull wave than insider selling is a red flag of overpriced equities, and the latest data is one more confirmation of this long-holding pattern. "Buying activity is a lot more illuminating than the insider sells and when we see market-wide buying, it's an inflection point signaling a bottom or that the market is about to find a bottom," said Ben Silverman, research director at Insiderscore.com. In August 2011, insider buying reached multi-year highs. In fact, insiders bought up shares at the most aggressive pace since the market bottom of March 2009. While the true bottom didn't come until October, now six-plus months have passed since the August 2011 insider buying binge and the major U.S. equity indices have all surged more than 20% off the October lows. In fact, no significant market move to the upside has been absent of insider buying since at least 1982, Insiderscore.com says. The research firm looked at the four most recent insider buy inflection points, too. All resulted in considerable gains (using the Wilshire 5000 Index, ex-financials) over the subsequent six-month period.
February 9, 2010: 10.2%
May 27, 2010: 10.3%
August 30, 2010: 28.6%
August 9, 2011: 20.6%
The data can be viewed relative to a decrease in net selling by insiders -- not just the buying -- and in terms of showing insider conviction at the worst of times, not just momentary dips like last August. A study on market-wide insider activity from 1982 to 1999, Corporate Insiders' Big Block Transactions, written by Steven Leuthold, the founder and chief investment officer of the Leuthold Group, and Eric Bjorgen, a portfolio manager at the firm, showed that the 10-week average of dollar volume of net insider sells seems to work extremely well in identifying bear market bottoms. When net selling has hit historic lows, it identified the market bottoms of 1984, 1987 and 1990 within several weeks.