Corporate Insiders Selling at Fastest Rate Since the 70s

Mark Hulbert of MarketWatch reports that an “ominous sign” is brewing by the look of current insider trading trends, which show that “insiders of NYSE (NYSE:NYX) and AMEX listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.” The sell-buy ratio among insiders is particularly alarming, calculated to be 6.43 to 1 as of last Friday, according to a Vickers report. That ratio is for insider trading of all publicly traded stocks, but zooming in on just companies listed on the NYSE or Amex, that rate balloons to 13.10 to 1, the highest mark the ratio has seen since data collection on insider trades began in 1974.

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According to Hulbert, this isn’t necessarily a sign of a coming downturn in stock markets. “One counterargument bulls can make is that it’s entirely normal for insiders to sell when the market rallies, and therefore such selling does not carry particularly bearish significance. Another bullish counterargument is that the volume of insider transactions last week was light, as it usually is during earnings season. That’s because insiders are either reticent to buy or sell their companies’ shares in the days and weeks before their companies report earnings, for fear of being charged with acting improperly. Perhaps the strongest counterargument the bulls can muster at this point is that the insiders are not infallible. That indeed is true. Still, researchers report that they have been more right than wrong.”

Insiders at a number of high profile companies have sold shares before their stocks surged this year. Bill Gates sold over $1 billion of his holdings in Microsoft (NASDAQ:MSFT) last quarter, while the stock has rallied 6.06% in the past three months. Google (NASDAQ:GOOG) co-founders Larry Page and Sergey Brin each sold roughly $300 million in shares in Q1 this year, while the stock has popped 11.17% in the last three months. Other high profile insiders such as Dell’s (NASDAQ:DELL) Michael Dell have continued to buy shares. Dell bought $150 million of his namesake company in the first quarter, with the stock up 5.24% since.