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Corporate Insiders Have Stopped Stocking Up On Stocks


Economic Trends

CORPORATE INSIDERS HAVE STOPPED STOCKING UP ON STOCKS

Don't look now, but one leading indicator of stock market price trends is looking a little down in the mouth. In periods of relative stock market stability, corporate insiders normally conclude twice as many sales of their company's stock as purchases--that is, the ratio of sell to buy orders by corporate insiders runs about 2 or 2.25 to 1. In the final quarter of last year, however, the insider ratio was about 0.5, reports Vickers Stock Research Corp., which means that insiders' purchases were outnumbering their sales by about 2 to 1. That surge in insider buying correctly anticipated the stock market rally that occurred in the first quarter of this year.

Recently, however, the sell-buy ratio has been moving higher, averaging 2.5 over the past eight weeks. Vickers analyst David Coleman cautions that such a shift need not be a negative sign, because insiders in the past have often temporarily accelerated their selling after a sharp market rally.

"The ratio bears watching," he says, "since it could foreshadow a pending correction." His own view at the moment, however, is that it probably reflects a short-lived deluge of sales orders that had been postponed while stocks were undervalued rather than a dearth of buying by insiders anticipating weak earnings.GENE KORETZ


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