CEOs selling stock -- sign of a downturn?

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(MoneyWatch) Corporate insiders such as C-level executives and directors know more about their businesses than you do. That's why the recent spike in insider selling is spooking some more pessimistic market watchers.

Indeed, John Hussman, the well-regarded manager of Hussman Funds, cites an Investors Intelligence report showing that corporate insiders are now selling shares at levels associated with "near panic action."

"Since corporate insiders typically receive stock as part of their compensation, it is normal for insiders to sell about two shares on the open market for every share they purchase outright," Hussman says in a new note to clients. "Recently, however, insider sales have been running at a pace of more than 8-to-1."

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The ratio of insider selling to insider buying is even more pronounced on a value basis, hitting its highest level in a year recently, according to data from Thomson Reuters. Taking the total market into account, insiders sold $44.77 worth of stock for every dollar they bought in February. That's the highest insider sell-to-buy ratio since February 2011, when it hit $44.53 to $1.

March, meanwhile, is so far running at $29.48 to $1. Taken together, the current streak of insider selling most closely resembles the levels hit in April and May of last year -- just as the market rolled over on Arab Spring oil-price spikes, the debt crisis in Europe and the earthquake and tsunami in Japan. See the chart of total market insider selling vs. buying over the last five years, courtesy of Thomson Reuters, below:

Thomson Reuters

Hussman says some of the weekly pops in insider selling have notched levels that are associated almost exclusively with intermediate market peaks, the most recent being the run-up to the 2007 market peak, the early 2010 peak and the 2011 peak. Each instance resulted in significant intermediate corrections or worse.

"Of course, it's sometimes the case that insiders are early, and therefore miss part of the tail of a market advance," Hussman says. "So it might be worth ignoring the heavy pace of insider selling for a little while. But you have to ask yourself one question. Do I feel lucky?"

[bobnjersey]

["Of course, it's sometimes the case that insiders are early, and therefore miss part of the tail of a market advance," Hussman says. "So it might be worth ignoring the heavy pace of insider selling for a little while. But you have to ask yourself one question. Do I feel lucky?]
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so ... what you're saying is the market goes up ... and the market goes down?

people invest by putting money in ... and take gains by taking money out?

ok ... thanks for that insight.

[RobAla]

When CEOs, CFOs, or COOs sell off corporate stock (and there appears to be no personal financial problem forcing them to do so), it is always bad news.

[76SpiritOf]

I guess it must be time to sell all my investments as well. Pass it on, its time to take the profits and sit on the sidelines.

The greedy hedge fund managers and short sale speculation is going to strangle the recovery by pushing gas prices so high it will be just like 2008. Another big recession caused by greed and wild speculating.

Only this time we will not be able to bail them out!

[californiadreaming]

It is time to sell ... At least soon. This is an artificial bubble caused by artificially low interest rates. The Fed messed that up. When things finally crash a lot is coming down with it.

No hedge fund managers or short sellers .... This is all government created. Gas prices make thing worse, but we have had expensive gas before and we were not the worse for it. Right now, "the recovery" is a house of cards. Unemployment is still high and everyone says thing are OK because the stock market is so high.

It's all about having no good place for anyone to stick their money. Obama wants to look like the savior so he keeps thing looking better than they are. All I know is that I can't sell my house at any price. No one will buy unless you mark it down 75%, because there are too many foreclosures to compete with.

So stop making this about the greedy 1%, and make it about the people we elect who fool us into overconfidence.

[kbbpll]

They're just taking out your 401k money. Nothing to worry about.

[californiadreaming1]

No, this is a sign of all things to come. Stocks are valued high because the alternatives are non-existent. Interest rates at banks are at an all time low. Since capital gains taxes are slated go up (by 8.8%) at the end of 2012 (5% reversal of Bush cuts, 3.8% Obamacare tax), then people are going to be selling lots this year.

Corporate executives are just the first to go, because they tend to have a lot of money tied up in their own companies. But by the summer to fall of 2012, everyone else will join in. Taxes are about to go way up on long term gains, there is not a stable market, the world is not stable - and you can't count on anything these days. By Jan 2013, there will be lots of sales and the markets will be way lower.

[Intelligentia100]

I agree. It's a logical analysis.

[cntrygirl3]

Maybe all these CEO's are frantically collecting money to give to a presidential campaign. Bet it is not Obama's.

[Molly-Pchr]

Very telling.