by Michael Tarsala
Will stocks continue to climb the wall of worry, or is Mr. Market sitting near a top, ready to take a tumble?
One worrying sign comes from Mark Hulbert, editor of the Hulbert Financial Digest. Citing data from the Vickers Weekly Insider Report, he notes that insiders holding NYSE-listed stocks sold 6 stocks for each one they bought last week. That’s twice the average selling ratio from mid May to mid August.
Trim Tabs Investment Research calculates an even higher ratio of insider selling. Yet it’s a similar conclusion. By its measure, insiders are selling with their own money at the strongest clip since April.
Even widely held Apple (AAPL), considered one of the strongest stocks out there, has seen some recent selling. Director Millard Drexler sold 25,000 shares at the end of August; it did not appear to be part of a pre-planned selling strategy.
In the case of Apple, insiders have persistently sold since last year. The direction of selling has not changed (going from buying to selling). It may not mean that much.
The level of overall selling for the markets, however, is of greater concern.
An academic study dating back to 1968 concludes that insider buying and selling can help predict large price changes. Simply put, insiders tend to buy ahead of meaningful price increases and sell ahead of declines.
The high level of insider selling for the whole market, taken with the low level of volatility and weakening market breadth, could be saying that the rally since May has grown long in the tooth.
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Copyrighted photo by: Lewis Clarke
