By Eric Roseman
If you’re looking for a reason to sell stocks then here’s a powerful catalyst…
I first documented the bearish development among corporate insiders in late April as
InsiderScore.com reported heavy sales. The trend in insider selling has accelerated markedly since then…as technology and healthcare CEOs and directors in the United States dump company shares amid an ongoing bear market rally.
Insider selling is not a perfect science, of course.
But one thing is for sure: Insiders know the fortunes of their company better than stockbrokers, money managers or other investment professionals. And they vote with their wallets.
If an insider is buying millions of dollars’ worth of company stock, it’s for one reason – prices are expected to rise. Insiders, however, might sell shares for several reasons. But when there’s a big cluster of selling en masse, it’s usually a bearish sign.
According to InsiderScore.com, officers and directors of publicly traded American companies have increased their selling of company stock since early May to their highest levels since 2006.
Why are insiders increasing their sales? After all, the bulls point to a major recovery ahead driven by massive government spending and concerted cost cutting across American companies.
Obviously, there’s something wrong with this picture.
What’s really telling is where the major concentration of net selling is coming from in the United States. Technology stocks, which have dominated the post-March rally until recently, are home to the biggest cluster of combined insider selling since early May. Historically, technology insiders have done a good job calling their respective tops and bottoms in the stock market cycle; so this latest dumping binge is likely bad news for the bulls.
Also, despite a near doubling of its stocks since March, some executives at Morgan Stanley are lining up at the door to sell shares.
Why Are Morgan Execs Selling? What do they Know that We Don’t?
According to another insider tracking firm, InsiderInsights.com, two executives at Morgan Stanley sold $2.9 million dollars of company stock this month even as the market continued to climb. Morgan Stanley’s stock price took a nosedive to an intraday low of $6.71 last October amid a global market meltdown; the stock has gained a cumulative 332% since October.
It seems odd to me that directors at Morgan Stanley would be selling stock if the worst was truly behind us; with all probability we have not seen the lows for this bear market credit-inflicted disaster as banks still require significant capital and for the most part are not lending.
The trend in U.S. insider selling is worth heeding.
The data might not be foolproof or highly predictive of future market trends…but it’s definitely not a positive development with stock prices now up more than 30% since March 9.
CEOs, CFOs and directors should be buying, not selling, if we’re truly at the cusp of a new bull market.