Bear Market Rally Nearing End: Insider Selling Increases
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In another sign that the current rally is nearing it’s end, insiders are dumping stocks. From Reuters:
A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.
Implications of Insider Selling
Increased insider selling has in the past been an indicator of an inflection point for equity markets, said Ben Silverman, director of research at InsiderScore.com.Sales of stock by company insiders suggests managers have a dim view of the market’s prospects.According to InsiderScore, buying peaked this year around the market low in early March. For the week ended March 3, six days before the market sank to a 12-year low, insider bullishness as reflected in buying activity recorded its fourth-highest reading ever“Insiders historically have a strong correlation on a macro level to buying and selling, said Silverman, who is based in Princeton, New Jersey. “There’s a lot of negative signs right now coming from insiders.”
Insider buying more or less caught the March low. Now that insider selling has picked up steam, the odds favor the downside in stocks. Although I’m bearish on stocks, there’s nothing I would like to see more than one more burst of “panic buying”, which I feel will give investors shorting opportunities of a lifetime.
Short Interest Declines
In the second half of July, short positions held by investors fell 10.3 percent on the New York Stock Exchange and 5.1 percent on the Nasdaq, according to the exchanges.Investors who sell securities short seek to profit from bets the shares will fall. Short-sellers borrow the shares and then sell them in the hope of buying back the shares at a lower price, pocketing the difference.The decline in short interest arguably removes a component of what has built the run-up in stocks. Fewer short positions means less potential short covering.
Bears who repeatedly shorted this market provided further steam to the rally. Turning points in stocks are marked by apathy on the part of short-sellers, which we are increasingly seeing now. Sooner or later, stocks will be reacquainted with the law of gravity.
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What Corporate Insiders Are Telling Us
(Investment U, 9/28/09)
Learn What Insiders Are Doing With Their Company Shares
(The Wild Investor, 7/30/09)
Insider trading is more bearish.
(Emerging Index, 9/13/09)
