Dow Jones 10724.15 +3.93 11:29 am PST, November 18, 2005  NASDAQ 2225.05 +4.59 For info, visit access.smallcapnetwork.com S & P 500 1243.85 +1.05 Change your subscription status here Russell 2000 671.42 +4.28 VOLUME 05: ISSUE 87  Feature: Go-Time for Time Warner? Trading on Insider Information. Investors would be wise to pay attention to the decent volume and price spike in Time Warner (NYSE: TWX) trading early Friday morning. We've been on the shares since August 11th and TWX is one of the five beaten down stocks in our recent Special Report. We're wondering if the long-awaited deal to offload AOL or some other nifty corporate announcement is percolating out there just beyond the market and is driving today's price and significant volume. Further, Carl Icahn sees the value of the shares around $27 (currently $18) and made his case once again in a BusinessWeek article this am.    (http://www.businessweek.com/magazine/content/05_48/b3961119.htm)  Doesn't look like Carl's going to go away until he gets what he wants and unlocks TWX's value, which he feels has been grossly compromised by the current management.  We think that risk-oriented investors should go along for what we feel will be an interesting and potentially very profitable ride; maybe soon, given the recent stock action. Recent trade action has left us with a classic retracement, which we feel represents a compelling buying opportunity. The shares appear to have bottomed in mid-July and rallied in August, pulled back and rallied again to $19 in mid-September. The recent pullback did a number of things besides leaving us with a perfect .618 retracement of the whole rally. It cleaned out the speculators looking for an early deal announcement and gave the smart money another chance to grab some cheap shares in anticipation of announcements to come. This renewed run has been on better volumes and looks more robust than previous attempts. In our opinion, with all the weak hands out, and the strength of this bounce, the potential appears compelling and the shares should be owned to take advantage of both TWX's turning fortunes and potential announcements as noted. Not much more to say. We feel TWX should be owned here. Faites vos jeux... Getting info on the Inside For some investors' an insiders' trading list is the Holy Grail of corporate sentiment. What if the CEO just needs a new car? I've yet to be convinced of the overall value of tracking insider trades, but certainly they are worth explaining and discussing. If you followed the insider folks at the housing stocks out of that market in July for example, you'd be chortling now. I've written on this topic before, but given the email I receive and the fixation some readers seem to have with insiders' trading, some points bear repeating. The entrails of these filings can be somewhat useful if the process is understood and should be used only as one arrow in a whole quiver of investment decision tools. And no, we're not talking the Sam Waksal/Imclone/Martha insider situation.  We're talking the legal kind. Probably the best example to view just about every conceivable type of insider trade-type is to peruse the transactions in Google (NASDAQ: GOOG). (http://finance.yahoo.com/q/it?s=GOOG). Within this phenomenon is just about every type of transactional eventuality; planned sales, automatic sales, acquisitions and option exercises are all readily apparent. And frankly, all this noise tells us virtually nothing about how management feels about the prospects of the company. Given the run the shares have had, wouldn't you sell some? Sure you would. The biggest mistake investors make is to assume that a 'planned sale' as evidenced by the filing of an SEC Form 144 (intention to eventually sell shares) is a negative for the shares, especially if there are a bunch listed. Insiders and other shareholders that happen to own restricted stock and are considering a sale of all or part of their holdings must file Form 144's. Stock can be restricted from trade for a myriad of reasons, but usually it denotes a time frame prior to which shares cannot be traded. Usually these positions are acquired as payment/remuneration, part of a financing or as currency for corporate services rendered.   Important to note that Form 144's have a 90-day life, so if the individual/institution doesn't sell in that time, they must re-file. A Form 144 must be filed as a possible intent to sell, and then a Form 4 is filed once the sale has actually taken place. Certainly a planned sale can occur within that 90 days, but since it can take weeks to get the144 filing approved, they can be re-filed for years. It simply gives the filer flexibility should they wish to unload some shares at some indeterminate point in the future. And why do insiders unload shares? Lest we forget, shares and options have become commonplace as part of a compensation package. Investors should never assume that a sale is necessarily an editorial comment on the fortunes of the company. The filer's child may need braces, or their house a new roof or there could well be tax-planning considerations.  Martha Stewart (NYSE: MSO) and her daughter Alexis have sold whacks of stock over the last year, but there have been acquisitions as well. Martha likely had some legal costs to take care of. Who knows or cares why Alexis sold. It says little to nothing about the fortunes of MSO. Given the MSO share price's recent nasty decline the market is sorting it out quite efficiently, regardless. As important is that the insider trading roles tend to be skewed to the sell side. Purchases usually are a result of option exercises or shares granted as part of compensation packages. Yes, there are direct market purchases, but they are usually well below the number of straight sales as affects the market trade/perception. So just 'cause there's lots of sales, that process, while of some value, is hardly a definitive indicator. That said there are services that track insider transactions in virtually real time. Vickers is likely the most well known and has a paid subscription service (http://www.vickers-stock.com) for the faithful. There is also a subscription feature at www.10kWizard.com for accessing individual filings by ticker, company or insider. Yahoo also has a decent insider transaction tab on individual company pages.  Several generic charts exist such as the one below from Thompson Financial, which simply divides all insider sales by purchases to get a ratio. But this, as with most services, is comprised of lagging data. Apparently, the deal is the lower the ratio, the more bullish one should become. This chart can be a bit deceiving as it includes all stocks and uses trailing figures. If you break it down into large cap and small cap, the sale to purchase ratio for the former for November is 78:1 versus 3:1 for the latter. Think of it in terms of dollars worth of stock sold versus shares purchased.  Not sure what that tells us other than small and micro cap insiders aren't trading as aggressively as their big cap brethren. But then there are way more big-cap players with more opportunities to buy and sell company shares. Small and micro cap folks tend to hold on for a big move. The smallcap insider ratio rarely gets higher than 8-9:1. Again, you can see the enigma of hanging one's hat purely on insider trade activity.  Under that scenario stocks with market caps from $0-$250 million look compelling, while those over $5 billion seem toppy. That may just be plain wrong. While these are interesting statistics and likely of some value they must be viewed and used in context with the big market picture. These lists are hardly definitive in my opinion; but for individual stocks, worth keeping an eye on the action as part of your due diligence. Now you know what insider trading is, how and why it's done and that they are usually of limited use. Any questions? Oh yes. If you look at the TWX insider sales, they've all been mostly, if not exclusively, sales of late.  I remain moderately flummoxed.   We Value Your Feedback Got comments, questions or suggestions? 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