Josh Friedman
Insider sell-to-buy ratio has topped 20-to-1
Sat Aug 16 20:51:59 2003
64.140.158.147

Posted on Thu, Aug. 14, 2003

Corporate insiders are on a selling spree
By Josh Friedman
LOS ANGELES TIMES
http://www.bayarea.com/mld/cctimes/business/6531042.htm



Corporate insiders have been unloading shares at a fast clip this summer, raising concerns
among some analysts about the outlook for the stock market and the economy. Last month,
officers, directors and big individual shareholders at U.S. companies sold more than $32
of company stock for every $1 they bought on the open market -- making July the heaviest
selling month in more than two years, data tracker Thomson Financial said Tuesday.

Heavy selling by insiders is seen by some investors as bearish, and for them the early
trend for August is negative as well, with insider sales outstripping purchases by about
22 to 1 so far this month.

What's especially notable is that the insider sell-to-buy ratio has topped 20-to-1 for
three months running, the longest such streak since July-September 2000. And the sales
have come as the stock market's big spring rally -- Wall Street's first extended upward
move since the end of 2001 -- has stalled.

"Insiders are having their own recall election," said Michael Painchaud, director of
research at Market Profile Theorems, a Seattle-based investment advisory firm that
analyzes insider transactions. "They are recalling some of their profits."

Insider buying at U.S. companies, meanwhile, has been sparse.

"Despite all the talk about economic recovery, corporate executives are not stepping up,"
Thomson analyst Kevin Schwenger said, noting that total buying in July fell to a two-year
low of $73 million. "It's a little bit worrisome."

Insiders sell for various reasons, including diversifying their personal portfolios, so
sales are not necessarily a bearish sign for any particular company. Reasonable
profit-taking is often the motive, and selling generally spikes after a run-up.

Still, some analysts look at insider transactions as a market gauge reflecting the
collective wisdom of those who should be in the know.

As a group, insiders now are signaling that the market could be set up for a pullback,
Painchaud said. "There could be a significant correction over the next three months," he
said, adding that it wouldn't preclude an end-of-the-year rally.

Insider purchases and sales are legal transactions by executives, directors and others
that must be reported to the Securities and Exchange Commission, as opposed to illegal
insider trading based on secret information.

Selling almost always outpaces buying because insiders often acquire shares through
indirect means such as stock option grants from a company, but they usually dispose of
shares directly on the open market.

Historically, insiders have been uncanny market "forecasters," Painchaud and other
analysts say. For example, after the July-September 2000 period, the S&P fell 19 percent
six months later and 28 percent a year later.

Some analysts say insiders these days are simply reflecting excessive caution in the wake
of the brutal three-year bear market, just like many individuals and Wall Street pros.
"Executives are sitting around saying, 'I don't believe in the recovery,' " said Barker
French, strategist at Brinker Capital, an investment consulting firm. "Just as they didn't
believe on the upside that their sales and profit growth projections were excessive, now a
lot of them are hanging their heads like Chicken Little waiting for the sky to fall."

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