Hulbert: Insiders Selling at Heavy Pace

Per Marketwatch's Mark Hulbert, corporate insiders are dumping shares at a pace last seen in July 2011. While not a perfect timing mechanism it's certainly worth noting.

• Corporate insiders are now selling their companies’ stock at a rate not seen since late last July. That’s a scary parallel indeed, since that late-July spike in selling came just days before one of the more painful two-week periods in the stock market in years. In early August, as you may recall, the U.S. government lost its triple-A credit rating, and the bottom dropped out of the stock market. Between the last week of July and the second week of August, the Dow Jones Industrial Average dropped 2,000 points.
• To be sure, heavy insider selling doesn’t always lead to this much market weakness, or this immediately. And there were a lot of other things going on last summer that aren’t present today.
• Still, on the theory that corporate insiders — officers, directors and largest shareholders — know more about their firms’ prospects than do the rest of us, it can’t be good news that they are selling at such a heavy pace.
• Consider a ratio calculated by Argus Research of the number of shares insiders have sold in the open market to the number that they have bought. Last week, according to the latest issue of Argus’ service, the Vickers Weekly Insider Report, this sell-to-buy ratio stood at 5.77-to-1. And among insiders at companies listed on the New York Stock Exchange, this ratio was even more lopsided at 8.2-to-1.
• Making these recent readings even more worrisome, according to Argus Research, is that they came on markedly stepped-up activity among corporate insiders. This increases our confidence that the ratio accurately reflects prevailing sentiment among a broad cross-section of the insiders.
• To put recent insider behavior into context, consider what they were doing in the latter part of November, the last time I focused a column on the insider data. In the last full week of that month, for example, the sell-to-buy ratio stood at 0.81-to-1 — a far cry from the 5.77-to-1 registered in the first week of February.