Let’s face it: nobody, including me, knows for sure what will happen in future. Not only that, there’s no guarantee that even those who have a pretty good idea about what comes next will act on that information, because plenty of other factors, including emotions and the realities of life, can get in the way.
Still, given how much stock prices have been beaten down from their highs, how hard the economy has been slammed over the past two years, and the allegedly widespread evidence of an impending turnaround, you would have thought that the individuals at Main Street’s front lines — corporate insiders — would be holding on to their company shares so they could sell them to the bullish greater fools at much higher prices.
In fact, that does not appear to be the case, as Mark Hulbert notes (below) in his latest MarketWatch column, "Insiders Are Selling":
Commentary: Corporate insiders more bearish than at any time in nearly two years
Corporate insiders have recently been selling their companies’ shares at a greater pace than at any time since the top of the bull market in the fall of 2007.
Does that mean you should immediately start lightening your equity exposure?
It depends on whom you ask.
But, first, the data.
Corporate insiders are a company’s officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.
One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.
I don’t need to remind you that the 2002-2007 bull market topped out that month.
To be sure, the weekly insider data can be volatile, especially during periods like the summer, in which the overall volume of insider transactions can be quite light. That is one of the reasons why Vickers also calculates an eight-week average of the insider sell-to-buy ratio, and it currently stands at 2.69-to-1. That’s the highest that this eight-week ratio has been since November 2007.
To put the insiders’ recent selling into context, consider that in
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.