Why are company insiders selling?
Company Focus 8/5/2009 12:01 AM ET
The recovery is supposed to be under way, right? But insider sales are at levels not seen in almost 2 years, which suggests there's still a bear out there.
By Michael Brush
MSN Money
A few tidbits of good economic data and generally better-than-expected profit reports have heated up the market once again on speculation the worst is really over.
Company insiders may be telling us the opposite.
While investors have lifted stocks even higher off the March lows, insiders have been quietly selling lots of shares of their own companies into the strength in the past month.
Ominously, insider sales now stand at levels not seen since late 2007, right before the current bear market began. And history shows that insiders are worth paying attention to, because they're the ones on the front lines.
The good news is that inside selling hasn't yet reached levels that portend a prolonged bear market. Instead, they could be signaling pullbacks that give you a chance to put money into stocks at lower prices.
But several sectors do appear destined for serious trouble, including consumer-oriented stocks and technology. Specifically, negative trends combined with insider selling suggest to me that First Solar (FSLR, news, msgs), J.M. Smucker (SJM, news, msgs), Moody's (MCO, news, msgs), Pulte Homes (PHM, news, msgs), Riverbed Technology (RVBD, news, msgs), CKE Restaurants (CKR, news, msgs) and Texas Roadhouse (TXRH, news, msgs) are particularly vulnerable.
The inside story
First, here's the big picture:
* An insider gauge tracked by Market Profile Theorems, a Seattle research shop, moved into bearish territory July 31 for the first time since November 2007.
* An insider sell-buy ratio tracked by Thomson Reuters has been hovering around bearish levels not seen since November 2006. It recently registered 53, meaning insiders pulled $53 out of the market for every $1 in stock they purchased.
* Another insider sell-buy ratio, tracked by Vickers Stock Research, is now "well within the bearish range," says David Coleman, who analyzes insider activity for Vickers. It hasn't been so high since November 2007.
