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Mark Hulbert
April 14, 2010, 12:01 a.m. EDT · Recommend (7) · Post:
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By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- Two months ago, when I last devoted a column to the behavior of corporate insiders, the news was positive.
I wish I could be as upbeat today.
My column two months ago came just as data were emerging on how insiders behaved during the sharp correction that began in mid-January. I reported that insiders as a group had, in the wake of that decline, cut back on the pace of their selling and picked up their buying -- which represented a collective bet that the downturn was nothing more severe than a mere correction. ( Read my Feb. 17 column.)
Today, in contrast, with the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 11,107, +87.59, +0.79%) nearly a thousand points higher, the situation is just the reverse: Insiders have picked up the pace of their selling and cut back on their buying.
Corporate insiders, of course, are a firm's officers, directors and largest shareholders. We are able to closely follow insider behavior because the law requires them to more or less immediately report to the SEC whenever they buy or sell their companies' shares.
One company that gathers and analyzes the SEC data is Argus Research, whose findings are published in the Vickers Weekly Insider Report. Each week, Vickers calculates a ratio of the number of shares that insiders have sold over the previous week to the number that they have purchased.
Last week, according to the latest issue of Vickers' service, insiders on balance sold 4.96 shares of their companies' stock for every one that they bought.
That's more than double the ratio for the week in early February when the stock market hit its low for the correction, when it stood at 1.96 to 1. In fact, the recent ratio is quite close to the 5.15-to-1 ratio that prevailed in the week in which the stock market hit its January high -- just before the correction commenced.
To be sure, there is a lot of volatility to the weekly ratios, especially when the overall volume of insider transactions is relatively light -- as indeed they have been lately. This is one of the reasons that Vickers also calculates an eight-week average of their sell-to-buy ratio. It currently stands at 4.18-to-1.
Except for a brief period last October, this eight-week ratio now is higher than it has been since late July 2007. That came just as the Dow was closing above the 14,000 level for the first time and the sub-prime mortgage mess was beginning to unravel.
Of course, corporate insiders aren't always right. As a group, they were far too confident during much of the 2007-2009 bear market, and consequently suffered large losses. But on average over the last several decades, they have been right more often than they've been wrong.
And, it's also worth remembering, even when the insiders are right about the direction of the market, they often are early.
All of which means that the stock market is not guaranteed to go down immediately, if at all.
Still, it can't be good news that insiders in recent weeks have so favored the sell side over the buy side.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of investment advisory newsletters. The HFD became a service of MarketWatch in April 2002. In addition to his regular columns for MarketWatch, Hulbert writes a column on investment strategies for the Sunday New York Times, a monthly column for Barron's.com and a column on newsletters for the Journal of the American Association of Individual Investors. Dow Jones and MarketWatch are launching a weekly newsletter, Hulbert on Markets: What's Working This Week.
Apple Inc. got a boost from its announced shortage of the iPad, but was the shortage planned from the beginning?
12:29 p.m. Today12:29 p.m. April 14, 2010 | Comments: 7
- papayafarmer | 1:00 a.m. Today1:00 a.m. April 14, 2010
"Mark Hulbert: The insiders pick up their selling http://on.mktw.net/c9ZbjX" 11:17 p.m. EDT, April 13, 2010 from MktwHulbert
"Mark Hulbert: Struggle to close above 11K tells a lot http://on.mktw.net/91e0tX" 11:44 p.m. EDT, April 12, 2010 from MktwHulbert
"Mark Hulbert: Junk has outperformed quality so far this year http://on.mktw.net/dz5YVy" 11:03 p.m. EDT, April 8, 2010 from MktwHulbert
"Mark Hulbert: Some worth more than in October 2007 http://on.mktw.net/98lTXT" 12:02 a.m. EDT, April 7, 2010 from MktwHulbert
"Mark Hulbert: Contrarian analysis of Dow 11,000 http://on.mktw.net/dvKNWG" 11:48 p.m. EDT, April 5, 2010 from MktwHulbert
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