DISCLOSURE: Readers should assume that all stocks mentioned in this column are owned by the author and/or his firm unless otherwise noted.

I consider my insider approach better at generating solid bottom-up investing ideas of individual stocks than market calls. But sometimes the secular trend of the indices is too strong to ignore, and the recent correction in the market certainly is such a trend.

The price charts of many of the individual positions on my InsiderInsights Recommended List have broken down in concert with the market. In reaction to this reality, and for fear of more indiscriminate selling in coming sessions, I have had no choice but to raise the level of cash on my Recommended List all the way up to 50 percent as of this writing.

2006 or a Reversal of 2003?

That said, insiders are reacting to this market dip just as you would expect them to. They are buying heavily — and rather more heavily than they have in a long time. One of my recent weekly insider buy/sell ratios was only negative four percent — meaning there were only four percent more companies with insiders selling shares in the open market versus buying. That’s the most bullish weekly ratio since the week ending March 14, 2003!

Long-time subscribers to my newsletter will remember when we commonly had positive Weekly Buy/Sell Ratios — meaning that there were more companies with buyers than sellers during a week or month. But there hasn’t been a positive Ratio since the week ending October 18th, 2002.

The buying is heavy, however, and the Rolling 4-Week Average of my Buy/Sell Ratios has already reached a level that has tended to correspond with near-term market bottoms over the past three years (see yellow oval on chart). Most recently, I generated a correct Buy Signal a year ago (July 2006) using this recent history as my guide. So there is an insider-based argument that the indices may be bottoming now.

But the comparison of a recent Weekly Ratio with data back in early 2003 is a healthy reminder that another possibility exists. What if my Buy/Sell Ratios do head back into positive territory?

It was only in the Spring of 2003 when the rolling four-week average of my Buy/Sell Ratios headed south with such ferocity, that I eventually felt the need to publish a shorter-term chart of my Insider Market Indicators to keep perspective on the inflection points on the chart that tend to correspond with short-term market tops and bottoms. Prior to 2003, the longer-term chart below was all I needed to generate remarkably good top-down market calls.

The wholesale change in the level of my Buy/Sell Ratios in 2003 has never been explained. I’ve heard other insider followers conclude that the sudden and persistent increase in insider selling was the result of option-related trades. But I presented findings way back in the February 28, 2005 issue of InsiderInsights that rebutted that assumption.

What sticks in my mind is that odd change in my long-time data set back in 2003 also corresponded with the advent of many of the economic imbalances that suddenly seem to matter now. The housing bubble was inflating, and lending criteria loosened. Persistently low interest rates were fueling the carry-trade and related financial transactions. Excess liquidity was all that was needed to explain the market continuing to rally throughout 2003. This was also the time when the U.S. current account deficit surged above the historically troubling level of 3.5 percent of GDP — and even Mr. Greenspan didn’t think it mattered.

Perhaps it’s all starting to matter now, and my Buy/Sell Ratios will once again spike into positive territory. I’ve speculated on that eventuality over the years, and pointed out that a return to a positive rolling four-week average of the ratios would only likely happen if the market sold off sharply.

Patience Is a … Necessity

But I am not here to call a crash. The fact is, crashes are rare events, and nobody knows for sure what is in store for stocks right now. The good news is, there is no need to decide if a crash is near, to act correctly. Whether or not this correction is a prelude to a fall or in the process of petering out, my immediate tactical approach to this market is the same: patience on the buying front, while allowing myself to be taken out of positions if their technicals break down.

If the indices happen to crash while I’m heavily in cash, then I have limited my losses, and have fresh ammo to go bargain hunting with. And if the indices bounce back as they did in March, I’ll move back into stocks in short order. Sure, I would have missed the first few percent of any new leg up. But history has shown that the types of stocks that make it through my insider screens do particularly well in an up market. I can afford to play it a bit safe during these very iffy times for stocks — especially since I still have gains this year to preserve.

To be sure, my tactical call is biased by the fact that I am judged on a monthly and quarterly basis by the clients I manage money for — not to mention the subscriber base of my newsletter. If you are a longer-term investor with a two-to-five-year time horizon, you can absolutely justify following insiders now into the extremely large number of stocks they are indicating value in. I would even be so bold as to say that that includes stocks in the financial sector, which is by far the most bought group by insiders at the moment.

Jonathan Moreland is the Director of Research at New York-based Insider Insights.com. Click here for a FREE trial issue of the firm's weekly newsletter Insider Insights.