Insiders Taking Profits Into The Market Upswing

by: Larry MacDonald

Lately, stock markets and insider trading have gone in opposite directions – with net insider selling rising while stocks march upwards. Given insider transactions have tended to foreshadow corrections in this extended bull market, we might suspect another dip is close at hand.

In Canada, INK Research charts show the percentage of insider purchases to sales on the TSX (within last 60 days) has trended down from 110% to 80% since December, while the TSX Index has trended up from 12750 to 13500. On the TSX Venture Exchange, the ratio of buying and selling has slipped from 160% to 80% while the market index has gained from 2600 to 3200.

In the U.S., data from Vickers Stock Research Corp. similarly shows insiders increasingly taking profits into the upswing, leading BCA Research to say: “This suggests that the quick run-up in stock prices is viewed as being too far and too fast relative to immediate corporate profit prospects.”

Not to worry: “It has paid to hold fast through the setbacks in recent years, because … arbitrage between stocks and bonds is in full swing.” With bond yields so low vis a vis corporate earnings yields, incentives still remain for buyouts and buybacks.

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