Corporate Insiders Have Stopped Stocking Up On StocksGene Koretz
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.