Something ominous is happening on Wall Street, but nobody has noticed.
The insiders have vanished
Chief executives. Board members.
The head honchos. The people who know.
Just a few weeks ago, they were out in force, buying up shares in their own companies with both hands.
No longer. They've disappeared. Almost overnight.
"They've stopped buying," says Charles Biderman, the chief executive of stock market research firm TrimTabs, which tracks the data. "Insiders aren't buying this rally."
Insider stock purchases, which surged above $100 million a day in the market slump last month, had recently collapsed to just $13 million a day.
Meanwhile the ratio of insider sales to purchases has skyrocketed. Today insiders are dumping $7 in stock for each $1 that (other) insiders are buying. That's a worrying ratio. Six weeks ago the amounts of purchases and sales were about equal.
It's the kind of news that should give investors pause.
What insiders do with their own money is one of the stock market's best barometers.
After all, who knows their own order books better than company executives? Who knows the conditions in their industry better?
You find insiders typically buying heavily at the market lows -- they did in 1987, in 1998, and they did during the financial crisis in 2008-09.
(You also typically find them cashing out big-time at the peak).
Early last month, when the stock market tanked, they turned out in force yet again. It was a very hopeful sign. In early August insiders bought shares at an even faster rate than they did at the market lows in March 2009. Indeed, TrimTabs says it was the fastest rate since November 2008.
The buying slowed in late August, when the market rallied and shares became more expensive. You'd expect that.
But around Sept. 7 the rate collapsed -- even though share prices were coming back down. You would certainly not expect that -- unless something was up.
Biderman points out that the insiders were sitting on their hands even as many share prices were at the same levels as early August.
Data from InsiderScore, a specialist research firm, points to a similar conclusion.
Consider the smaller growth companies that make up the Russell 2000 ($RUT.X). InsiderScore reports that honcho sentiment at these companies was very bullish just a few weeks ago. The people running these companies plunged into the market to buy up stocks in early August, when prices fell.
Today their share prices are no higher. But the insiders are no longer acting bullish.
And InsiderScore reports that the picture is similar for financial stocks, too.
What's up?
The executives and their customers are back at their desks after the summer vacations. They've had a chance to look at the forward order books.
Or maybe they're just worried about the big picture.
Greece. China. The U.S. economy. The budget. Any number of things could cause the stock market to throw a wheel. (With the recent sell-off, this may have already begun.)
For the recent stretch of volatility, Biderman blames uncertainty. "It looks to me that insiders are uncertain as to what's happening," he says.
If I wanted to commit myself to stocks at these levels, I'd rather see the insiders doing the same.
