At Ockham, we continue to be interested insider trading activity as an indicator of sentiment.  Of course, we understand that insiders do not know what the future holds more presciently than the rest of us, but we think it is safe to assume that there are few investors more knowledgeable about any particular stock.  The trend in insider trading activity suggests that corporate managers believe that their company’s stocks are getting out ahead of themselves. 

We have noted the fact that insiders have become increasingly bearish over the last few months, and each time the extent to which the sellers have outnumbered the buyers continues to rise.  Today, a press release from TrimTabs Investment Research shows that insiders are selling at a pace not yet seen; insider selling is 30.6x greater than insider buying!  This is the highest ratio on record since TrimTabs began tracking this data in 2004.  Furthermore, their data reveals that insiders have sold a record $105.2 billion worth of stock in just the last four months.

Thus far, the bearishness of insiders over the last four months has led to some missed gains thanks to the continued rally.  However, instead of regaining their faith in this market, insiders are digging in their heels on the bearish side of trades.  Readers can come to their own conclusions about the implications of such a strong and defined trend, but the CEO of TrimTabs certainly has an opinion.

“The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon…

Investors who think the U.S. economy is recovering are going to get a big shock this fall.  Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes.”– Charles Biderman CEO of TrimTabs Investment Research