Greg Guenthner

The headlines say you’ve been duped…

Corporate insiders are unloading shares at a wild pace just as average investors start to buy again. That’s right — the folks who know the most about the inner-workings of their companies don’t see a lot to cheer about in this market.

So they’re selling you stock and hitting the road…

How bad is it?

According to a report published by Argus Research, the sell-to-buy ratio for shares listed on the New York Stock Exchange registers at a staggering 9.2-to-1.

It gets worse. The last time this insider indicator was this lopsided was July 2011, according to Mark Hulbert. That was just before the debt ceiling debacle sent the market into a tailspin…

On the surface, these are scary numbers. In fact, the financial media has beaten the drum about the steady uptick of insider sales for weeks.

Now that the market is consolidating, worries are intensifying.

But hang on just a minute…

However bearish the numbers might appear on the surface, it’s a bad idea to use insider selling as your personal sell signal for the market at-large. If you did, you would have sold out in December (missing the entire post-fiscal cliff rally) as the ratio topped 8-to-1.

Also, it’s important to note that broad-based insider selling ticks higher when the market makes a strong push due to the triggering of stock options and other selling plans. Not all of the sales can be attributed to bearish outlooks.

This particular set of insider selling numbers could be skewed by some advantageous profit taking, according to Grace L. Williams over at Barron’s. Williams has tracked numerous cluster sells in larger companies that he attributes to selling into strength, while also noting that there are smaller companies out there where “convicted buying” is happening…

So should you expect a market crash as insiders head for the exits?

Probably not.

When the sell-to-buy ratio has hit these extremes in the past, Hulbert notes that the broad market has dropped an average of 2.1% over the next month. That’s right in line with a reasonable pullback after a strong January rally.

Best,

Greg Guenthner
for The Daily Reckoning

Greg Guenthner

Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

Recent Articles

Addison Wiggin
A Manifesto, of Sorts

Addison Wiggin

More than a decade ago, Addison Wiggin helped co-found the Daily Reckoning with Bill Bonner. Today, he recalls this life-changing experience, and explains how - despite being rooted in the world of finance - it is and will always be about much more than money. Read on...


4 DIY Halloween Costumes You Can Make in 10 Minutes or Less

Peter Coyne

Halloween is tonight! And just in case you waited until the last second to think about what you're going to wear, here are four costume ideas you can easily put together in about 10 minutes or less. With these costumes you'll be the hit of your friend's party - provided you're friends with a bunch of economists. (Downloadable masks included...) Happy Halloween!


Bill Bonner
4 Basic Truths to Help You Navigate the Financial News

Bill Bonner

The financial news is full of misinformation - reported by unreliable pundits and taken at face value by an easily swayed public that doesn't really no better. That's why today, Bill Bonner relays the four basic truths he's discovered during his 30 year career in the financial industry to help you make sense of it all. Read on...


Extra!
How YOU Can Help Pass the Swiss Gold Referendum

Grant Williams

For those who doubt the effectiveness of the Swiss Gold Initiative, Grant Williams has a few startling charts to show you. Today, he relays just how popular this movement is, and how you can actually influence the outcome... no matter where in the world you call home. Read on...


How Small Cap Stocks Saved the Market

Greg Guenthner

For most of the year, no one wanted small cap stocks in their portfolios. But over the last three weeks, few sectors of the market have performed better than small caps. Greg Guenthner explains how to use this to your advantage... and what to expect for the rest of 2014. Read on...