When insiders aren't buying, look out

Now that a certain subsector has entered a kind of market Twilight Zone, you can bet that the selling is not done.

By Jim Cramer Apr 25, 2014 11:47AM

Digital tablet with stock market data © Erik Khalitov/Getty ImagesHere's something to think about. When you look at the bedraggled biotech and software-as-a-service sectors, do you ever see much insider buying? When you look at the companies that are still going public in these sectors, do you ever see any earnings?


Have you noticed that the ones going public now are either early-stage biotechs that you would never finance yourself or incredible niche software-as-a-service players for some small vertical that you would never invest in yourself?


TheStreet.com logoWe are truly in the Twilight Zone of these stocks, where unless there is some consolidation or some insider buying of note, or a sense that the companies think profits will actually matter someday, you can bet that the selling is not done.


Plus, while I am not a chartist, have you looked at the charts of these? They are among the most perfect head-and-shoulder patterns I have ever seen.


Worst of all, the insiders are now thinking, "OK, if Facebook (FB) shot the lights out with the best growth that's actually ever been seen since the Apple (AAPL) and Google (GOOG) breakouts, and if Gilead (GILD) could have the biggest launch ever, in history, and not go higher, how about my little software-as-a-service provider for the coffee room? How about my biotech lab that has nothing that can even be inflicted on mice yet?"


Honestly, when people call in on stocks that are speculative right now from these two areas and they want my blessing, I don't even know what to say. Gilead and Facebook are executing flawlessly, and it isn't enough. Meanwhile, UPS (UPS) and McDonald's (MCD) blow the quarters and they aren't even down. ServiceNow (NOW) delivers 60 percent revenue growth, something that would have gapped it up three months ago, and instead it rallies a dollar and then pirouettes 10 percent, even as every analyst reiterates "buy." What happens when one breaks ranks? That's been the pattern.


If you are an insider at one of these companies, aren't you calling your broker and saying, "Can you line up a basket of like-minded software-as-a-service companies and short them to hedge my software-as-a-service exposure?" If you own locked-up shares in a money-losing software-as-a-service human resources company, why not short another money-losing software-as-a-service human resources company? What's the difference at this point? You need to protect yourself and your obscene profits before they disappear into the ether.


Oh, and just to be sure, I know whereof I speak. Back in the previous heyday, in 2000, when I was locked into millions of shares of TheStreet.com, broker after broker offered me a chance to short a basket of other money-losing dot-coms as a hedge to the potential TheStreet.com losses. I didn't do it. Didn't seem right to me. But these days, when hedge funds legally run ahead of takeover bids and high-frequency traders run ahead of everyone, I guess running ahead of the selling in your own stock by shorting a bunch of analogues makes sense.


And believe me, that's exactly what's going on. Who can blame them? The supply is ridiculous. The glut is immense. The software-as-a-disservice-to-your-portfolio days are upon us. They won't let up until we see mergers and insider buying instead of pump-outs and insider selling.


That could be a very long time.


Jim Cramer on MSN Money


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio to see the stocks Cramer thinks could be winners. The portfolio is long FB, AAPL and GOOGL.




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51Comments
Apr 25, 2014 12:14PM
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Jim let us not forget that insiders are now also making their dough by share buybacks.  If there is knowledge of a planned buyback like we are now seeing en masse why would anyone sell today?  Once again we see fish in a barrel investing.  If insiders sense or know a buyback is in the offing they know they will soon get free money.  If it isn't the FED manipulating interest rates to maintain stock prices, or sweetheart trade policies, and now even buybacks extraordinaire what will be next?  These cats have been spoon fed for so long they expect it and whine and cry if they don't get it.  And to listen to these folks whine about the entitlement mentality of Unions, poor people, and anyone else they can attack is truly pathetic.  There are millions upon millions of willing hardworking caring Americans that are being excluded from the Milk and Honey Wall Streeters now expect to be theirs forever.
Apr 25, 2014 2:38PM
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Plain and simple fact is peple arent buying something that is fixed. Wall street like today is manipulating stocks for its favor and isnt concerned about its investors dollars. There is zero trust among investors when you know the game is rigged and not to your side!! 
Apr 25, 2014 3:08PM
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 Another sign that this bull run may be coming to an end, new mortgages at a 14 year low for the first Qt. Add to that foreigners selling US treasuries at a never higher rate than in the 12 months.
Apr 25, 2014 3:40PM
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"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson 
Apr 25, 2014 2:54PM
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Yawn, Yawn -- Stock investing for individual investors is with the casino and lottery sucker plays.

Start farming or some other business and get a gun.
Apr 25, 2014 2:12PM
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When stocks don't rise on good earnings and the former market leaders no longer lead the market higher, it's time to either short the market or, at the very least, raise cash.
Apr 25, 2014 12:43PM
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Why insiders aren't buying... the U of MI Confidence Index came up-- WAY UP because we have less debt (foreclosed on and living in shelters) and (McDonald's) hiring is UP. For a FACT-- jobless claims rose and NONE of the 90 MILLION uncounted in the data are working... so where did those facts come from? Commonsense sees FAILURE because inevitably, when there are no truths to rely on... FAILURE must be the only truth. 
Apr 25, 2014 1:28PM
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maybe instead of buying stock, the big boys are buying real estate. 

 

buy something tangible.  even if it looses value, it's still a rentable property

Apr 25, 2014 4:00PM
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Congratulations to Holder for learning how to handle rejection better.

 

See, I can be nice to Democrats.

Apr 25, 2014 2:37PM
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This sounds like a Goldman Sachs strategy to me.  For shame.

 

I don't think anyone is interested in biotech start ups for the time being until we've had a few more years of ACA insurance to see better what may be covered and what may not be covered.

 

A $1,000.00 a pill wonder drug isn't worth much to anybody including investors.

 

 

 

Apr 25, 2014 2:42PM
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Does anyone realize that 85% of workers are disgruntled with management, cube farms, bureaucracy, alumni coddling and the rest of the crap that trickles down without reciprocating pay for tolerating it? WHAT GOOD is stock in a function-less business platform no one wants to work for? And YES... it's coming faster than YOU think, Wall Street. 
Apr 25, 2014 1:04PM
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Instead of getting stuck with a bunch of crappy stock and then having to hedge that by shorting similar junk, why not negotiate a better compensation package that isn't so top-heavy with company stock?  This is a viable option for just about anyone, unless you're a founder of a company or you got in on the basement floor of a start-up.  

For every vendor that got paid in Facebook stock and become a gazillionaire, there are a million vendors who got paid with stock in some stupid start-up that never got off the ground.  A million bucks in stock options that I can't exercise for 5 years, or $200k in cash?  Depending on the circumstances, I'd look hard at taking the cash...
Apr 25, 2014 5:32PM
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No one has been sent to jail 6 years later, that's the whole problem.
Apr 25, 2014 11:58AM
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I think every morning Bobo has 2 articles written ...one bearish and one bullish ...when he see which way the market is heading he chooses which to release.

Also this is the second time in a a few days he has referenced his unwillingness to short a basket against his street dot com shares because "it didn't seem right to me" ...we get it cramer you are a paragon of virtue and morality ....

So moral you sell garbage advice to suckers for $700 a year !!! 
Apr 25, 2014 3:03PM
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Hey Double V............ was it the funny sound bites on Bobo's show that suckered you in?
Apr 25, 2014 3:34PM
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Kudos' to the Stock Industry for rebounding:


But just like the watch that was wound to tight

           " Something Has To Break"

Apr 25, 2014 4:17PM
Apr 25, 2014 2:30PM
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Insiders, Outsiders. The "chosen ones" are about to choose sides.
Apr 25, 2014 1:50PM
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"they want my blessing"

 

Ha ha ha ha........ Ooooo.... That's so funny. Anoint my choice with a funny sound bite. 

 

 

Apr 25, 2014 4:55PM
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Now that the inquiries are moving forward and digging deeper, the parasitic wall street mouth breeders are getting rid of any possible evidence and will go into hiding for a while. They will most likely screw with bonds until the stock side calms down a little - same old tactics, different investigation.
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