Chat room junkies whip themselves into frenzies the instant they get wind of a sell.
Here we go again! LOL.
Insider Selling Rarely Defeats Winning Stock
By JONAH KERI
INVESTOR'S BUSINESS DAILY
November 9, 2000
Insider selling can trigger panic attacks with some investors. The sight of an exec dumping shares sends some antsy traders sprinting for their own sell button.
Not so fast. A CEO cashing in stock doesn't tell the whole story.
"Never, never, never base your decision on the singular event of an insider trade," said Bob Gabele, director of insider research at First Call/Thomson Financial. "You have to look at more pieces of information, at other pieces of the puzzle."
First Call is one of several services that track insider trading closely. In fact, you'd be hard-pressed to find even the smallest insider trades going by without a mention somewhere. News wires report them constantly. Chat room junkies whip themselves into frenzies the instant they get wind of a sell.
But insider sells could mean a lot of things, Gabele says. Kids' college tuition and luxury cars don't come cheap.
Neither does retirement. An executive winding down his career may start his estate planning by cashing in shares. You'll often see large sells from such execs even while other insiders are buying stock, Gabele says.
Some big cheeses sell stock on a regular basis. Microsoft Chairman Bill Gates and Dell Computer CEO Michael Dell both do. They might be diversifying their holdings, or they could have other reasons.
"We all know about Gates' house," said Gabele, referring to the Microsoft head's palatial estate outside Seattle. "I'm sure that took a few shares to build."
Insiders rarely have the inside track on timing. Check out Cisco Systems. The stock shot out of a base in November 1998. Two weeks later, insiders unloaded a million shares (point 1 in graphic). Barely flinching, Cisco continued its run-up.
Starting in January 1999, the stock moved sideways for several weeks. Insiders cashed in another million shares in early March (point 2).
The selling continued all the way through the stock's run-up. But Cisco didn't take notice. It jumped nearly fivefold from its November 1998 breakout to its peak in March of this year.
You'll find plenty of better sell signs if you know where to look. For instance, sales and earnings growth could start to slow. More often, though, technical signs will precede fundamental ones. Some stocks will rocket up on huge volume in the final stages of a run-up, signaling a climax top.
They may gap higher in the last days of that run. That's an exhaustion gap, telling you your stock may be out of gas.
Look out for stocks moving higher on lower volume. They may lack the institutional muscle needed to push them to new heights. Without that support, your stock could fall quickly.
Beware of failed breakouts, too. A stock may look great blasting out a base. But if it drops back into its base, something's wrong. It may be time to sell.
AI
