Pump and Dump

Finally, a crack in the hope rally.  But it was only a small crack:  the S&P500 dipped about half a percent for the week.  The VIX, or the fear index, jumped for the first time in weeks, also supporting the pullback.

The green shoots arguments lost some ground this week:  leading economic indicators at -0.3% was worse than predicted; Initial claims at 640,000 and continuous claims at 6.14 million were also worse than expected.  Durable goods orders were still negative (month to month) and existing home sales dropped much more than expected.

The technicals also crossed over, mildly from bullish to bearish this week, on the daily charts.  The equity markets are still extremely overbought and are overdue for a more meaningful downside correction.

This week, Bloomberg published a interesting piece on insider selling within the NYSE listed companies.  After an impressive period when the S&P 500 climbed 26% from a 12 year low on March 9, company insiders sold 8.3 times more equities than they bought. 

Per Bloomber, that represented the fastest rate of selling since October 2007–the all-time peak of the S&P 500, and the beginning of the current devastating bear market. 

Also, the $42 million of insider purchases (through April 20) represents the lowest amount of purchases since July 1992.

Given that the last major selling wave signalled the last major peak in the equity markets, and given that we have recently reached a strong technical market high, what can we conclude from this current burst of insider selling?

Alan Abelson in Barron’s asks the question this way: “If those now infamous shoots of recovery are popping up all over, why would insiders be aggressively dumping stocks?”

His blunt conclusion: “Nobody ever sold a stock because they thought it would go up.  And as a group, corporate insiders obviously are scarcely enthusiastic about the prospects for a genuine bull market.”

One can argue that many forces came together to pump up equities over past six weeks, but regardless of the particular means and reasons, it sure looks like the insiders are dumping them now.

Perhaps you should too.

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