Wall Street

Insiders bailing on Dow 14,000

Corporate insiders have one word for investors: sell

CNN Money,

6 February, 2013

Insiders were nine times more likely to sell shares of their companies than buy new ones last week, according to the Vickers Weekly Insider report by Argus Research.

That's the highest level of insider selling since March 2012.

And it comes just as individual investors are starting to return to the stock market.

After yanking more than $150 billion out of U.S. stocks last year, individual investors have been on a buying spree in 2013, with $17 billion flowing back in, according to the latest data from the Investment Company Institute.

Related: What's behind the bull market

With the Dow flirting with 14,000 and just 200 odd points away from a new all-time high, have individual investors missed out on the rally?

Maybe

.

"In the past, this level of insider selling has been indicative of a coming downturn or at least a plateau in the market," said David Coleman, insider trading analyst at Argus Research.

The last time the Vickers index hit a level above nine was mid-March of last year. That was just before stocks closed out their best first quarter in more than a decade.

Shortly thereafter, the Dow, which had just topped 13,000, slipped below that mark and largely stayed there until late July, when stocks rallied back with a vengeance on hope for more stimulus from central bankers in Europe and the United States.

In 2011, insiders also rapidly sold out of stocks just a few weeks before S&P downgraded the credit rating of the United States.

Insider selling isn't the only technical indicator flashing "sell."

Last week's CFTC Commitment of Traders report showed a big swing from bearish (or neutral) to bullish and that's typically an indicator of a coming plateau, or drop in the market, said Ari Wald, a technical strategist at PrinceRidge.

In the span of two months, the percentage of bullish traders jumped to 55% from 37%.

"It usually means that a lot of bullish bets have already been in place," said Wald. "It doesn't mean the market will fall apart but it looks like time to take a more neutral approach."

CNNMoney's Fear & Greed Index has also seen a big swing. The index has been in extreme greed over the past week, hitting a record high of 94 (the index only goes to 100). It has since backed off a little, but is still in extreme greed. Just a couple of months ago, it was deep into fear, hovering around 27 in mid November.

If Wald's predictions are true, that big swing may be yet another sign that a change is coming.

Sucker Alert? Insider Selling Surges After Dow 14,000

CNBC,

5 February, 2013

Insiders have been pulling out of stocks just as small investors are getting in.

Selling by corporate executives has surged recently as the Dow Jones Industrial Average hit 14,000 and retail investors flooded into stocks. The amount of insider selling has usually preceded market selloffs.

"In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012," wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. "Insiders are waving the cautionary flag in an increasingly aggressive manner."

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company's stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year.

"Insiders know more than the vast majority of market participants," said Enis Taner, global macro editor for RiskReversal.com. "And they're usually right over a long period of time."

The Dow Jones Industrial Average jumped above 14,000 last week, but has been stuck just below that level since then. Meanwhile, a record $77.4 billion poured into equity mutual funds and ETFs in January, according to TrimTabs Research.

Looking at a longer time frame paints a bearish picture as well. The eight week sell-buy ratio from Vickers stands at 5-to-1, also the most bearish since early 2012. What's more, the last time this ratio was at these levels was June 2011, just before another correction in the stock market took place.

"Insiders (are) showing a remarkable ability of late to identify both market peaks and troughs," states the Vickers report.

Coleman cited insider selling in specific companies such as Cintas, Western Union andDavita as a reason to take profits right now.

To be sure, many traders have their doubts about using insider data to try to time the market. They cite the prevalence of option grants and pre-arranged selling plans that may skew the data negative as stocks rise.

Still, for selling to be big enough that firms like Vickers raise a bearish flag, the bulls may want to take heed.