As my pal Ian Cooper wrote over the weekend, the fundamentals simply do not support the rally.
Maybe that’s why insiders have been using the greatest market run up in market history to dump stocks rather that buy them.
From Trim Tabs entitled: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top
“TrimTabs Investment Research reported that selling by corporate insiders in August has surged to $6.1 billion, the highest amount since May 2008. The ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004.
“The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon,” said Charles Biderman, CEO of TrimTabs.
TrimTabs’ data on insider transactions is based on daily filings of Form 4, which corporate officers, directors, and major holders are required to file with the Securities and Exchange Commission.
In a research note, TrimTabs explained that insider activity is not the only sign the rally is about to end. The TrimTabs Demand Index, which tracks 18 fund flow and sentiment indicators, has turned very bearish for the first time since March.
For example, short interest on NYSE stocks plummeted by 10.3% in the second half of July and margin debt on all US listed stocks spiked 5.9% in July, while 51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007.
“When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock,” said Biderman.
TrimTabs also reports that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares.
“Investors who think the U.S. economy is recovering are going to get a big shock this fall,” said Biderman. “Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes.”
Food for thought as we head into September…
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