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Energy sector continues to see strong insider buying

Randall Moore/The Globe and Mail

The TSX energy sector got bruised today after Ottawa's surprise decision to shelve Progress Energy Corp.'s takeover by Malaysia's Petronas. But it's worth noting the energy group has been well supported by insider buying in recent weeks, pointing to how even corporate executives and directors were caught off-guard by the government action.

Regardless, they are a pretty bullish bunch. INK Research, which monitors insider buying and selling of shares, notes that its energy sector sentiment indicator remains above 200 per cent this week. At that level, there are more than two stocks with key insider buying for every one with selling. The latest reading, specifically, is 218 per cent, which is more bullish than just two weeks ago, when it stood at 183 per cent.

Only two sector sentiment indicators are higher: basic materials, at 253 per cent, and health care, at 220 per cent.

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The sentiment indicator is derived by taking the number of stocks with buy-only transactions over the last 60 days, and dividing that with the number of sell-only transactions. (The indicator ignores stocks that have both buying and selling in an effort to give a more accurate reading).

Overall, the INK sentiment indicator for TSX-listed stocks is 104 per cent, which suggests the market may be relatively undervalued based on the actions of corporate insiders.

"While insiders were buying over the summer, they are currently in wait-and-see mode before committing more capital across the board," said INK Research analysts Ted Dixon and Henry Chan in a note.

"While the big picture remains upbeat in terms of Canadian insider signals, investors may still have to brace themselves for some short-term weakness. Volatility could easily move up as we approach the second week of November when new administrations are chosen in the U.S. and China.

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