I usually put a lot more stock in insider buying (since it is so rare) versus insider selling (which is prevalent) within single companies, but when we see large flushes across the entire market, it is usually a good sign that those in the know are trying to get out at the 'top'. Per Mark Hulbert at Marketwatch, one indicator is flashing red:
- Bad news, stock-market bulls: Corporate insiders are selling their companies’ shares at an abnormally fast pace. In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago. On the theory that insiders know more about their companies’ prospects than do the rest of us, this is an ominous sign.
- One firm that gathers and analyzes the data is Argus Research, which publishes its findings in the Vickers Weekly Insider Report. One indicator that the firm calculates is a ratio of the number of shares that insiders have sold in the open market to the number that they have purchased. In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks’ readings over the last decade.
- That’s ominous enough, but consider last week’s sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974.
- Perhaps the strongest counterargument the bulls can muster at this point is that the insiders are not infallible. That indeed is true. Still, researchers report that they have been more right than wrong.