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What To Make Of The Insider Selling?

 June 22, 2009 10:43 AM
 


Bloomberg files this report on the recent rise of insider selling, company executives dumping the most shares since mid-2007, shortly before the broad stock market's peak.
Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

Insiders of Standard & Poor's 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show.
...
Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies' prospects.
Surely this can't be a good development for your typical retail investor, many of whom have just recently convinced themselves that it's OK to put some money back into stocks again.

Perhaps a visual aid might help...
The good news is that the 2007 stock market peak didn't occur until some four months after insider selling peaked in June. Here we are, almost exactly two years later, and it appears that the timing could be again aligned for a fall season that does not treat equity markets kindly.

Why is insider selling so important? It's quite simple...
"If insiders are selling into the rally, that shows they don't expect their business to be able to support current stock- price levels," said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada that oversees $33 billion in client assets. "They're taking advantage of this bounce and selling into it."
...
"They're looking to take some money off the table because they think the rally will come to an end," said Ben Silverman, the Seattle-based research director at InsiderScore. "It's the most bearish we've seen insiders, on a whole, in two years."

The last time there were more U.S. corporations with executives reducing their holdings than adding to them was during the week ended June 19, 2007, the data show. The next month, two Bear Stearns Cos. hedge funds filed for bankruptcy protection as securities linked to subprime mortgages fell apart, helping trigger almost $1.5 trillion in losses and writedowns at the world's biggest financial companies and the 57 percent drop in the S&P 500 from Oct. 9, 2007, to March 9, 2009.
There's much more information in the report about stock sales at individual companies, but, perhaps the most important detail is that insider selling reached an all-time record back in the first quarter of 2000, as the 18-year bull market in stocks reached its climax, the official demarcation point between "dotcom" and "dotbomb".

[Related -Eurocurrency Volatility Index (EVZ) at Lowest Level Since March 2008, Diverges From VIX]

[Related -Too-Big-To-Fail Q&A. Get The Facts.]


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