Insider sellers capitulate -- now let's see more buying

by Michael Tarsala

Insiders are selling a lot less stock than they were just a few weeks ago -- a far less negative sign for markets.

As Mark Hulbert at the Hulbert Financial Digest writes, the usual ratio of insider selling to buying over the last four decades is between 2-to-1 and 2.5-to-1. Citing data from the Vickers Weekly Insider Report, he says the ratio was 1.63 to 1 at the end of last week. The ratio had been at 5.71 to 1 at the start of May, and was 6.56 to 1 before the market drop began in April.

Insider selling has never been at the top of my list of market indicators. I have always been of the mind that insider buying is the far more important thing to watch.

Company executives, board members and other insides sell stock because of options expirations and all sorts of reasons.

Yet they only buy because of one -- they think a stock is a good value, and will rise over time. While selling may hold less weight in general, it can be important to watch in downtrends. I'll explain. In a strong market uptrend, it's not all that unusual that insiders want to sell their stocks high. What is worrying, however, is when they continue to sell when stocks are falling. It's an indication that they think their stocks will continue to move lower.

And when you have this happening across the board in a downtrend, it says that markets may continue to move lower.

So it is encouraging, at least, that the wave of recent insider selling in a downtrend has dried up.

Now let's see if there's a wave of insider buying.

There has been some in recent days, including at regional bank Cincinnati Financial (CINF) -- a financial stock group favored by Bill DeShurko, manager of the Dividend and Income Plus model, and one on the radar of Mike Arold, the Technical Swing model manager.

But it's not yet a wave.

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