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Insiders and Corporations Selling At Near Record Pace!

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    May 20, 2014

    For the last few months, and in fact the last 12 months, a lot of so-called ‘smart money’ institutions, hedge funds, and big-name investors, have been warning of expectations of a 10% correction or worse.

    It still hasn’t happened, but their expectations apparently haven’t changed.

    Corporate insiders may be expecting more than just a correction. Alan Newman, editor of Crosscurrents writes that insider selling has been more intense in recent weeks than he has seen in many years.

    Mark Hulbert recently had an interesting article on MarketWatch titled ‘In-The-Know Insiders Are Dumping Stocks’. In it, he reports on a different method of measuring insider activity developed by University of Michigan finance professor Nejat Seyhun, outlined in Seyhun’s book ‘Investment Intelligence from Insider Trading’.

    Seyhun’s research shows that the activity of large investors in a company, those holding more than 10% of the stock, has little correlation to subsequent market moves (probably because they tend to be institutions like mutual funds which must remain pretty much fully invested).

    For his calculations, Seyhun strips out those largest share-holders and claims much better predictive results. In March, the latest information we can find on it, his measurement showed corporate officers and directors were at a record level of bearishness, having sold 6 shares for every share bought, double the average ratio since 1990, when Seyhun’s data begins.

    Then there are the corporations themselves.

    They have been dumping IPOs on the market, selling stock to enthusiastic investors, at a frenzied pace, classic late bull market behavior. Much of the IPO activity involves ‘smart money’ private equity and venture capital firms that financed the start-ups, and have apparently decided that now is the time to cash-out by selling to the public.

    In most cases they aren’t even waiting until the companies are profitable, stirring memories of the dotcom bubble in 1999. SentimentTrader reports that 74% of announced IPOs this year have no earnings, the second highest ratio in history.

    None of these situations of ‘smart money’ behavior can be used to ‘time’ the market. Corporate insiders tend to be early with both their selling near tops, and their buying near bottoms.

    But it is food for thought.

    Even David Tepper, the hugely successful billionaire hedge fund manager (Appaloosa Management), previously one of the most insistent market bulls, is getting nervous according to reports of his comments at the SALT conference yesterday.

    To read my weekend newspaper column click here: Defensive Sectors Are No Help in Market Downturns

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 


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