At the top of the hill mid-week, the market appears at a crossroads, of sorts. Down, up, down since Monday. Take a look at 3-day charts for both the DIJA and the S&P 500. The movement has created virtually identical patterns, but that is merely a point of interest. My point here is not to get into patterns, charts, formulas, tops, EMAs, DMAs, or anything else technical. Simply, I suspect the froth from the churning will settle one way or the other soon enough. How it finishes today will help decide future direction is my guess …
- Selling by corporate executives has surged recently as the Dow Jones Industrial Average hit 14,000 and retail investors flooded into stocks. The amount of insider selling has usually preceded market selloffs.
The above raises a question – can insiders really foretell market turns?
Aside from their knowledge of their own business and the market sector it serves, why would insiders en masse be any more prescient than any other market player?
- “In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply – falling to its lowest level since late March 2012,” wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. “Insiders are waving the cautionary flag in an increasingly aggressive manner.”
Okay, not to argue with one who studies insider buys and sells, but it seems to me that insiders could be selling for other reasons than fear. Certainly, some might wish to take windfall profit on long-held options (now is a good time). Others might see a topping and selling stock is simply smart business, and still others might have prearranged selling times that are happening now. It is also true some might see a coming economic slowdown based on their lucid understanding of their business role in the overall economy, which they perceive as a negative for the market.
Maybe it is all the same thing, but the question remains – does excessive insider selling, for any reason, mean anything in the near- or long-term trend of the market? After all, Coleman cites March 2012 as the most recent low level of insider sentiment, and we all know what happened in 2012 – a rise in March, a dip in April, a drop in May and then the market began rising in June to finish the year strongly positive (aside from a fall dip). Excessive insider selling meant nothing to the market movement for 2012.
- Insiders have been pulling out of stocks just as small investors are getting in.
Coleman also makes the above correlation. The implication is that the two in combination have some significance and we should pay attention to it. Should we? You already know what I recently wrote about the current bear theory on retail investors coming into the market, but let me add, it is possible that insiders are just like everyone else – subject to the negativity of the breathless media. No, I conclude excessive insider selling means little in the near- or long-term market picture. To be fair, however, here is another correlation that Coleman makes. Even though it means nothing to me, it might to you.
- There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year.
To be clear, that 10% correction came in late spring/early summer, sometime after the aggressive insider selling. Anyway, keep your eye on the ball, which has nothing to do with what insiders are doing, unless you are looking at a specific stock or sector. Now, here is some food-for-thought about where to move your money…
- The five biggest U.S. mortgage lenders controlled just 53.2 percent of the market last year, down from nearly two-thirds in 2010, Inside Mortgage Finance data shows. As small lenders grow, that share could shrink to 40 percent of the $1.8 trillion mortgage market by 2014, a recent FBR Capital Markets report forecast.
- Home Depot Inc said it will hire 10,000 additional seasonal workers for its key spring selling season as it sees higher sales growth during the period. The home-improvement retailer said it will hire 80,000 seasonal workers this year, 14 percent more than it hired last year.
Trade in the day; Invest in your life …
