The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.
The largest companies in three of the most important leading sectors (technology, retail, semiconductor) of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.
The grand total for the three sectors are “as awful as we have ever seen since we began doing this exercise years ago,” said Newman. “Clearly, insiders are seeing great value only in cash. Their actions speak volumes for the veracity for the current rally.”
The insider data “is good reason for considerable caution once the price action fades,” said Simon Baker, CEO of Baker Asset Management. Still “insiders normally buy early and sell early too. Longer term -- 12 months out -- it is more of a red flag.”
To be sure, many investors feel the heavy insider selling is just an anomaly based on other reasons.
“These are folks that have had to dip into their stocks for the first time in years, as their salaries have been cut and their bonuses, outside Wall Street, have been significantly curtailed,” said J.J. Kinahan, chief derivatives strategist for TD Ameritrade. “ This may speak more to a cash flow problem, then a market belief.”
“At the risk of sounding like a broken record, we expect a significant correction,” said the newsletter editor.
No matter which way you believe the market will be going in the near future, you have to respect this sell-side statistic. Looking back over the past couple of years, a lot of compensation to company executives have been in the form of equity, as well as means of trying to fix the agency problem. Also, when the stock prices of these companies were so deeply depressed, many execs bought the shares at all time lows because they knew the company was worth more than it's current price reflected. Lastly, how many people do you know (including yourself), who say "if I only could have cashed out of my real estate in 2005!". People have the same mentality about stocks, and with the uncertainty of today's economic climate, a 'bird in the hand in worth 10 in the bush'! BUT, with a ratio of 3,177 to 1, there is something else at work here!! I think everyone is on their toes now waiting for a pullback. If there is one, it most likely won't come until after earnings season.
That ratio is incredible, it makes me wonder if it is realistic or if insiders are really that pessimistic right now
Salaries and bonuses have been down and prices are up from the worst of it all. It's not terribly surprising.
I know what you mean craig. But 3,177:1! What the hell?!
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