Don’t worry. Be happy. What would corporate insiders know about their own companies’ prospects and earnings expectations? Just ignore all the facts. Bennie knows best. Don’t fight the Fed. His advice about housing in 2005 was spot on. His assessment of the financial system was dead on in 2007. Bennie is never wrong.
Insiders now aggressively bearish
Commentary: Insider selling pace now fastest in several years
By Mark Hulbert, MarketWatch
Reuters
Traders work on the floor of the New York Stock Exchange.
CHAPEL HILL, N.C. (MarketWatch) — Corporate insiders are aggressively selling their shares.
This is worrisome because corporate insiders — officers, directors and the largest shareholders — presumably know more about their companies’ prospects than the rest of us do. If they were confident that the shares of their companies would soon be trading markedly higher, they wouldn’t be selling them now.
Yet selling they are — at an alarming pace.
Consider an insider indicator calculated by the Vickers Weekly Insider Report, published by Argus Research. The indicator is a ratio of all shares that insiders have recently sold in the open market to the number that they have purchased.
For the week that ended last Friday, this sell-to-buy ratio for NYSE-listed shares listed stood at 9.20-to-1. That means insiders of these companies, on average, were selling more than nine shares of their firms’ stock for every one that they were buying.
To be sure, insiders have been selling heavily for several weeks now, and the market has continued to rise — including the Dow’s eclipsing of the 14,000 level in recent sessions. This surprising strength in the face of insider selling has prompted a number of you to inquire how unusual it is for the insiders collectively to be such poor market timers.
As you can imagine, it’s not unprecedented. But it is more the exception than the rule.
Upon reviewing the historical data, shared with me by Argus Research, I found four occasions over the last decade in which the ratio got this high or higher and the market continued rising for at least another month or two.
Overall, however, the market fell. On average over the month following each prior occasion when the sell-to-buy ratio got this high, the broad market fell by 2.1% — as measured by the Wilshire 5000 total-return index.
In any case, as others among you have pointed out, the high level of insider selling in December could very well have been caused in large part by the prospect of higher tax rates in 2013 — which would have prompted them to accelerate their sales. To the extent this was so, of course, the high sell-to-buy ratio at that time would have been a false signal.
Regardless, the sell-to-buy ratio today is even higher than it was in mid-December, and it can’t be discounted because of the immediate prospect of higher taxes.
All of which suggests to me that there is a distinct possibility that this time around, unlike in December, the insiders will be right.
Eddie says:
The insiders are always right, imho. While the December insider sales very well may have been influenced by tax law changes, that is not a reason for high insider selling now. More likely, it’s a combination of low earnings on the horizon for most companies, and a realization that QE Infinity is not going to prop up the markets much longer. If I owned any stocks, I’d check and see what the company officers are doing about now. It’s easy to check.
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6th February 2013 at 11:20 am
treemagnet says:
For my first controversial post, Mark Hulbert is a douchebag – whether he writes something I agree with or not, this ass clown talks outta both sides of his mouth. His next article will be some compelling reason to go long. Anyway, sorry – finishing the Fourth Turning and since I’m a 13er, I’m somewhat fired up.
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6th February 2013 at 11:22 am
card802 says:
Anybody have a chart on the Baltic Dry Index?
It seems that the signs are pointing to a weak global economy and a market correction.
So why do the wall street cheerleaders and politicians tell us all is well and to invest? That just seems mean to me.
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6th February 2013 at 11:30 am
Hope@ZeroKelvin says:
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6th February 2013 at 11:48 am
AWD says:
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6th February 2013 at 12:31 pm
Administrator says:
Baltic Dry Index is dropping like a lead balloon.
http://www.taintedalpha.com/wp-content/uploads/2012/02/TaintedAlpha.com-Baltic-Dry-Index-06-02-2012.gif
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6th February 2013 at 2:29 pm
AKAnon says:
Treemagnet-As a first time “controversial post”, that was so-so at best. Hardly an epic rant, but you’ll get used to letting go in time. You must be an understated 13er, like myself. So is “Treemagnet” a reference to your driving record?
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6th February 2013 at 1:36 am