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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: SusieQ1065 who wrote (4014)	4/14/2001 12:51:08 PM
From: keithcray	Respond to of 5732

Mutual Funds & Personal Finance Monday, April 16, 2001 Insiders Boost Sales Even As Stocks Drop They’re usually buyers at bottoms, but this time could be different By Ken Hoover Investor's Business Daily When the market takes a big hit, company insiders usually step in and buy more shares of their own stock. That’s been the record for the past few decades. So watching the overall trend in insider transactions can sometimes help an investor gauge whether the market is close to a bottom. But this time is different. The ratio of insider sales to buys is shooting up, even as the bear market has deepened. This has some analysts worried. They think it means the market might have further to fall. That’s the position of David Coleman, editor of Vickers Weekly Insider Report. For years, Vickers has kept an index of insider selling and buying. An eight-week reading below 2.25 suggests more buying than normal. Above that suggests more selling. The index was well below 1.00 near major bear market bottoms of the past 15 years, suggesting insiders thought their stocks were bargains at the right times. That was the case after the October 1987 market break. It happened again when the market was down in 1990 — and during the corrections in 1994 and 1998. But last week, the index hit 3.4 and is rising. Coleman reads that as a sign of aggressive selling. "When insiders start selling aggressively, we move to cash," Coleman said. Three weeks ago, he moved his model portfolio to 100% cash. But Coleman sees rays of hope. He watches the so-called Rule 144 transactions. The rule requires insiders to register stock for sale with the Securities and Exchange Commission if it’s never been in the market before. Rule 144 registrations are dropping. Coleman sees that as a good leading indicator that the Vickers’ index may soon change direction. But there might be another reason for the rising ratio of selling to buying. It’s not that there’s so much selling. But there isn’t much buying. That’s the side taken by Paul Elliott, an analyst with Thomson Financial/First Call. Until recently, he says, the market’s slide was mostly in the tech-heavy Nasdaq. Tech insiders are not as likely to buy their stock in the open market. That’s because a higher proportion of their pay is in stock options. So they don’t need to. Also, Elliott argues, some insiders have enormous amounts of stock. Why would Oracle chief Larry Ellison buy more Oracle? He already owns 1.3 billion shares, Elliott notes. At 15.53 a share, that’s valued at $20.2 billion. The SEC has strict rules against corporate officers and directors or anyone else trading on nonpublic information. Insiders can buy and sell shares in their own companies provided they tell the SEC by the 10th of the next month. The theory behind watching insider transactions is that insiders know more about their companies than anybody. They are value players who supposedly know when their stocks are a bargain and when they are overvalued. Or when the company might get in trouble. But reading the tea leaves of insider transactions can be tricky. Significant buying might be interesting to an investor. But insider selling is often meaningless. Insider sales could have nothing to do with an executive’s opinion of his company’s prospects. He might be selling to buy a new house or pay for a child’s college education. And if the stock has had a big run-up, he might want to sell off shares to diversify. Then, sometimes, insiders are just plain wrong. They sell shares, and the stock climbs anyway. Insiders at fast-growing high-tech companies were consistent sellers during the 1990s. Their stocks rose for years afterward. These were generally newer companies. Their leaders’ fortunes were tied up in them. As their companies succeeded, they regularly sold part of their stakes to diversify. Elliott says he looks for abnormal buying and selling. Perhaps the transaction is an unusually large share of the insider’s holdings. Or it’s the first time the insider has bought or sold. Or it departs from a pattern followed for several years. He considers heavy selling after a decline a bad sign. It might mean a further decline is ahead.