The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.1) Overwhelming sellers over buyers, at record pace: Bearish
The strategist looked at insider trading activity amongst the top ten companies that make up the Nasdaq such as Apple [AAPL 308.05 -0.79 (-0.26%) ], Google [GOOG 618.60 2.10 (+0.34%) ] and Amazon [AMZN 169.95 0.95 (+0.56%) ].
Then he analyzed the biggest members of the Retail HOLDRs ETF like Gap [GPS 19.68 0.32 (+1.65%) ], Target [TGT 53.14 -0.62 (-1.15%) ] and Costco [COST 63.68 -0.43 (-0.67%) ], as well as the top insiders in the semiconductor industry at companies such as Altera [ALTR 30.33 0.09 (+0.3%) ], Broadcom [BRCM 37.22 -0.29 (-0.77%) ] and Sandisk [SNDK 37.19 -0.22 (-0.59%) ].
The largest companies in three of the most important leading sectors of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.
The grand total for the three sectors are “as awful as we have ever seen since we began doing this exercise years ago,” said Newman, who was ahead on such trends as the dangers of high-frequency trading and ETFs before the ‘Flash Crash’. “Clearly, insiders are seeing great value only in cash. Their actions speak volumes for the veracity for the current rally.”
The insider data “is good reason for considerable caution once the price action fades,” said Simon Baker, CEO of Baker Asset Management. Still “insiders normally buy early and sell early too. Longer term -- 12 months out -- it is more of a red flag.”
Still Newman, who is also a favorite commentator of Barron’s columnist Alan Abelson, sees the insider selling as just the latest reason, along with the mortgage foreclosure mess and fully invested mutual fund managers with no fresh powder to put to work, to be cautious on the market.
“At the risk of sounding like a broken record, we expect a significant correction,” said the newsletter editor.
2) Selling in important leading industries: Bearish
3) Value in cash: Bearish
This is a leading indicator for the stock market and not a timing mechanism. It's a bearish shadow over the market. If executives really thought the government and QE2, 3, 4 or whatever was really the answer, they would load up on their shares.
What's comical is how often pundits on TV will tell people how poor cash is as an investment, and yet executives are moving their net worth to cash.
Who do you believe? TV Pundits or Executives!
Hope all is well.
J.D. Rosendahl, Rosey