by Bob Stokes
Updated: March 03, 2017
[Editor's Note: The text version of the story is below.]
A funny thing happened on the way to the Dow surpassing 21,000 for the first time: Corporate insider selling of shares has jumped "to levels rarely seen."
Around the last week of February, insiders' sale transactions on the NYSE outnumbered their purchase transactons by more than 11 to 1, according to Vickers.
On Feb. 28, CNBC showed this chart and said:
Vickers tracks its sell/buy ratio over a period of varying time lengths in order to get a better idea of whether one week is part of a bigger trend. Its longer-term eight-week ratio for all U.S. stocks shows this is not just a short-term trend, with 5.98 buy transactions for every sale over the last two months. On the chart, the eight-week sell/buy ratio is tracked inversely on the right scale, with the stock market on the left scale. The research shop does it this way to illustrate the divergence between insiders and the market: The Dow Jones industrial average keeps going higher, yet insiders keep dumping stock.
We've repeatedly said that there may be many reasons why insiders sell their shares, but one of them is not because they think the price of their company’s stock is going to go up.
For example, in February and March 2000, as the S&P 500 index was climbing to its then all-time high, insiders sold $18 billion in stocks. That was the biggest two-month selling spree on record.
Some seven years later, the selling was even more intense. This chart and commentary are from our January 2007 Elliott Wave Financial Forecast:
While Wall Street loves stocks, the chart shows that those closest to corporate prospects are selling their own shares more furiously than at any point in the last decade. According to various services, insider sell/buy ratios are at their highest level since 1987, right before a stock market crash. Lower levels of insider selling helped the Financial Forecast identify selling opportunities in July 1998, April 2000 and July 2002.
As we know, nine months later, the S&P 500 hit a major high and went on to surrender about half of its value through March 2009.
Besides watching the market activity of corporate insiders and other time-tested indicators, we are studying the stock market's Elliiott wave pattern.
It's showing that the entire bull market since March 2009 is approaching a crucial juncture that every investor should know about.