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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (39828)	6/29/2003 3:17:50 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71611

Insider selling an ominous sign Jun. 28, 2003. 12:14 PM RACHEL BECK ASSOCIATED PRESS NEW YORK — Corporate insiders sure like this stock market's rally, but not for the buying opportunities. They are selling, big time. Just as small investors warm up to putting money back into stocks, executives are cashing out of their companies' shares at a pace not seen in two years. Some of their selling might just be to buy waterfront property, put children through college or lock in profits after the crippling bear market. But there may be more to it than that. At some companies, insider selling can signal trouble ahead for earnings. And for the overall market, it's often a good predictor of a decline. Talk about spoiling all the fun. Average investors just started buying into the current rally, which has taken the broad U.S. market up more than 20 per cent in the last three months. At the same time, many executives have been getting out. In the first half of June, American corporate insiders disposed of $1.3 billion (U.S.) in stock, on top of the $3.3 billion they sold last month, according to Thomson Financial. Contrast that with the $161 million of stock they bought during the same period. There's nothing illegal about insider trading, so long as executives, directors and key employees don't make their trades before the public release of specific information likely to move the stock. Still, insider trading can give investors a glimpse into how executives feel about their company's prospects. Some of the selling may just be routine. And in some sectors, notably technology, stock compensation is often the bulk of executive pay, so they sell their shares for income. Investors, though, should take note if selling comes when a stock hasn't appreciated much. That could be a precursor of bad earnings news to come. "If the company is doing poorly and the insiders are selling, that isn't a good sign," said Lon Gerber, director of insider research at Thomson Financial. Another concern is massive selling after lots of good news, raising questions of whether growth can continue. Also troubling is a significant spike in insider selling after an extended pause. Insider selling also serves as a leading indicator for the overall stock market. Thomson Financial's sell-buy ratio, which compares the value of total insider shares sold and bought, now stands at $34 to $1, the highest level since May 2001. Above $20 is considered bearish; the ratio's five-year average is around $12. To gauge how insider selling may factor into the current market, the investment firm Market Profile Theorems compares trends in insider trading with other market data. Its historical database going back three decades indicates that bearish insider-trading data usually contradict bullish general investor views. That is exactly what is happening now, with market sentiment shifting to the more positive side while insider sales have been ramping up. MPT also looks for confirmation of potential market weakness from its earnings model, which began shifting toward negative in early June. That means that quarterly earnings may disappoint. "Now is not the time to be aggressively buying stocks, but to do a little housekeeping and make sure your portfolio doesn't have any risks in it," said Michael Painchaud, who heads Seattle-based MPT. "It is time for a little pause."