“Our Indicator Is Flashing A Warning Sign”: Insider Selling Soars To Near Record Highs

Back in mid-March, when the S&P was crashing and just days before the Fed completed its nationalization of the bond market when it announced Unlimited QE and corporate bond purchases, we responded to those asking who is “buying while there’s blood in the streets” with the following simple answer: corporate insiders. 

Indeed, at a time when most hedge funds were panic selling, executives – who know their company prospects better than literally anyone else – were hitting the clearance rack and buying shares of their own companies at what Bloomberg called a “breakneck” pace, with total insider buys outpacing sales by the most since 2011.

Four months later, with the S&P now back to just a whisker away from all time highs, and a handful of tech stocks at never before seen levels…

… insiders have had enough and, confirming that valuations are in some cases even beyond dot com levels, have turned from rabid buyers into sellers with data from The Washington Service showing that nearly 1,000 corporate executives and officers have sold shares in their own companies this month, outpacing insider buyers by a ratio of 5-to-1.

How big is this insider selling frenzy in context? According to Bloomberg, “only twice in the past three decades has the sell-buy ratio been higher than now.”

A similar surge in selling in early 2020 and back in 2018 served as a handy indicator of imminent losses.

“Our indicator is now flashing a warning sign,” Moreland said. “I’m not prepared to say everybody should sell everything and short the market because of the recent insider data. The way I’m using it is, I’m more comfortable selling some of my winners. We still don’t trust the market’s recent recovery.“

Among the execs who are following MOreland’s advice are UnitedHealth Group Chairman Stephen J. Hemsley and Morgan Stanley CEO James Gorman, both of whom have sold shares this month.

Amid the deluge of selling, some buying still remains, although that number has dropped to fewer than 200 corporate insiders who bought shares in July, compared with a full-month average of 1,160 during the first half of this year, according to the Washington Service data which also revealed that a total of $52.6 million of shares was sold last week while purchases reached a paltry $3.4 million.

“When the market is trading as it is, very close to all-time highs, it gives the optics that insiders don’t believe the market being at these levels,” Robert Pavlik, a senior portfolio manager at SlateStone Wealth, said by phone. “It presents the appearance that they think their stocks are overvalued. It may be true, but there is no definite way to tell.”

Well, there is a very simple way to tell: just check back in 1 month and compare where prices are then.

Below is a Bloomberg excerpt of July open-market stocks sales, excluding those set up through 10b5-b programs or related to options:

• JB Hunt Transport Services Inc. Chairman James K. Thompson: $2.03 million
• Costco Wholesale Corp.’s James P. Murphy, executive vice president: $1.63 million
• Broadcom Inc.’s Charlie B. Kawwas, senior vice president & chief sales officer: $1.61 million
• Medical Properties Trust Inc. CEO Edward K. Aldag Jr.: $7.42 million; Chief Operating Officer Emmett E. McLean: $3.8 million; and Chief Financial Officer R Steven Hamner: $4.21 million
• Five Below Inc. Chairman Thomas G. Vellios: $10.3 million
• CarMax Inc.’s Ronald E. Blaylock, a board member: $910,000
• Workhorse Group Inc. CEO Duane Hughes: $699,906