Friday, June 26, 2009

Red Flag - Heavy Insider Selling

Earlier this week data was released that showed corporate insiders were selling their stock at a rapid rate to take advantage of the recent stock market rally.

The Wall Street casino operators keep sending their mouthpieces on to CNBC air telling the retail public investor to buy, buy, buy because the "green shoots" of economic recovery are appearing everywhere.

Meanwhile, corporate insiders - executives who really know what is going on with their company and how the economy is impacting their company - are saying sell, sell, sell and are thankful for the higher prices they are receiving for selling their stock.

Insider selling has been a fairly accurate gauge in this decade on stock market peaks. The current level of insider selling has climbed to the level last seen in mid-2007. Mid-2007 was when the broad stock market peaked, credit markets began to freeze and the ferocious bear market began.

Insider selling reached its all-time high back in the first quarter of 2000, back when the 18-year bull market in stocks reached its climax. It was also the point in time that also served as the official demarcation point between "dotcom" and "dotbomb". So insider selling is not something to be ignored by investors.


I ran across something interesting this week. It was a chart showing the Dow Jones Industrial Average, adjusted for inflation, from 1925 to the present. It can found at

This chart showed that the current market valuation is right in the middle of the historic price range band. So don't believe the people who tell you the stock market is cheap right now.

But then the chart really gets interesting. Looking at the chart one can see that the two previous declines within the historic price range band took a long time to complete.

The first decline lasted approximately 20 years, from 1929 to 1949, and the second decline lasted approximately 17 years, from 1965 to 1982.

We are in the midst of the third decline on the chart. Let's hope it does not take as long for this decline to end. Depending if you use either 2000 or 2007 as the peak of the market, we would talking about the years from either 2017-2020 or 2024-2027 as the end of the bear market. Not a pretty "picture".


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