May 3rd, 2017
There aren’t any surefire ways to tell if the stock market, and perhaps the rest of the economy, is about to take a nosedive. That’s because millions of people with millions of ideas are involved, so it’s an inherently unpredictable system. However, there are certain players in our economy that have a lot more influence and insider knowledge than the rest of us. So when they make a move in unison, you know there’s a good chance that something is about to go down.
And that’s exactly what’s going on with the stock market right now. The people who would stand to lose the most if the markets crashed; the corporate executives and insiders, are all jumping ship and selling their stocks.
As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years. Selling totaled $10 billion in March, according to data compiled by Trim Tabs.
It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices?
The groundswell of insider selling has the attention of Brad Lamensdorf, portfolio manager at Ranger Alternative Management, and he doesn’t like what he sees.
“This is definitely a negative sign,” Lamensdorf wrote in his April newsletter. “They do not see value in their own companies!”
And this isn’t a recent trend. While ordinary investors were optimistically diving into the stock market after Trump was elected, these people were dumping their stocks as far back as February.
Chief executives and other corporate insiders are selling stock hand over fist now that the quarterly earnings season is over, a report from Vickers Weekly Insider shows. Transactions by insiders are restricted around a company’s report.
“Insider selling has jumped again, and this time to levels rarely seen,” analyst David Coleman wrote in Monday’s note.
In the last week, insiders’ sale transactions on the NYSE outnumbered their purchase transactions by more than 11 to 1, according to Vickers, a publication of Argus Research. The 11.47 reading is 3.5 standard deviations above the mean, according to Coleman.
Clearly, they know something that most Americans don’t. I’d wager that they know the stock market can’t keep reaching record highs indefinitely, they know the economy is resting on shaky ground, and they know that this sudden surge of investments in the stock market is their last chance to make a killing before the whole thing comes crashing down.
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