Monday, October 11, 2010

Investor caution follow-up for a pre-election October: The yellow flag is out

Insider Selling Versus Insider Buying Numbers May Tell A Story

On Saturday I wrote the article titled "Market caveats: It's October in an election year", in which I opined about statistics released by the federal government and the analysis of those statistics by the "experts":

"...An optimistic, or sometimes seemingly contradictory presentation of questionable numbers will be made, and are to be expected.

But Remember That It Is October In An Election Year. Caveat Emptor!..."

Insider Buying And Selling At S&P 500 Company's May Be Telling A Similar Story

Statistics provided by Zero Hedge.

Although there are quiet periods when corporate insiders can neither buy or sell shares in their own company, the actions that these people take when they are able to often provide a good clue of the future direction of that companies earnings, and by extension share price. Are they believers in the future prospects and purchasing shares, or are they cautious and/or negative on those prospects and selling shares?

The following ratios tell the story of the number of shares being sold for every share bought. The numbers are somewhat staggering and suggest that the yellow caution flag may be out:

The numbers from Bloomberg of the actual transactions by S&P 500 companies for the week ended October 8 can be found here and below. Very telling and a little concerning if you are thinking of buying right now. Remember the phrase, Caveat Emptor!

Insider Transactions 10.11.jpg

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