Wednesday, April 14, 2010

Heavy Insider Stock Selling

Insider selling is not my favorite indicator since insiders could be selling for lots of reasons. That said, the sizeable insider selling versus buying going on now suggets that at a minimum insiders don't see any huge positive future news for their corporationswhich would cause them to hold off selling. Here's Mark Hulbert with the details:

Two months ago, when I last devoted a column to the behavior of corporate insiders, the news was positive. I wish I could be as upbeat today.

My column two months ago came just as data were emerging on how insiders behaved during the sharp correction that began in mid-January. I reported that insiders as a group had, in the wake of that decline, cut back on the pace of their selling and picked up their buying -- which represented a collective bet that the downturn was nothing more severe than a mere correction.

In contrast, with the Dow Jones Industrial Average nearly a thousand points higher, the situation is just the reverse: Insiders have picked up the pace of their selling and cut back on their buying....
Last week, according to the latest issue of Vickers' service, insiders on balance sold 4.96 shares of their companies' stock for every one that they bought.

That's more than double the ratio for the week in early February when the stock market hit its low for the correction, when it stood at 1.96 to 1. In fact, the recent ratio is quite close to the 5.15-to-1 ratio that prevailed in the week in which the stock market hit its January high -- just before the correction commenced.
To be sure, there is a lot of volatility to the weekly ratios, especially when the overall volume of insider transactions is relatively light -- as indeed they have been lately. This is one of the reasons that Vickers also calculates an eight-week average of their sell-to-buy ratio. It currently stands at 4.18-to-1.

Except for a brief period last October, this eight-week ratio now is higher than it has been since late July 2007. That came just as the Dow was closing above the 14,000 level for the first time and the sub-prime mortgage mess was beginning to unravel.

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