Massive insider selling spurs stock market concerns

Corporate insiders have been selling their shares at near-record levels, and according to some, this could be a sign for outside investors to start selling as well.

Investment research firm TrimTabs reported on Wednesday that insider selling reached $7.6 billion for the month of November, the fourth-highest monthly level on record. For some this may be an alarming indicator, as corporate insiders tend to have more knowledge than public shareholders on the inner workings of the company, and what may drive stock prices up or down.

"Historically when insiders are selling heavily it's not the greatest sign," TrimTabs' chief executive, David Santschi, told CNBC in a phone interview Wednesday. "I'm surprised given the valuations in the market that they're not selling more than they are."

However, Dennis Davitt, chief investment officer of Harvest Volatility Advisors, said insiders may have a good reason to sell that doesn't have to do with an imminent move in the company's stock price.

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"The indicator's changed in the world we live in now," Davitt said Wednesday on CNBC's "Power Lunch." "I think there's too much risk to be selling your stock if you know or feel that your stock is going to go lower."

And as the broader market rises, Davitt said it may be a wise decision for those who hold large positions in their company's shares to sell and diversify.

"if you're a high net worth individual and the market's up 100 percent over the last four years, you should be diversifying, you should be selling some of what you own," he said.

Among the companies with the highest volume in insider sales for November were Microsoft with about $1 billion, Facebook with $730 million, CA Technologies with $600 million and Fitbit with $400 million, according to TrimTabs research.

But when it comes to individual names, Santschi cautions investors on taking these numbers at face value.

"You should definitely look carefully at who's doing the selling," Santschi said. The filings that detail insider selling may be submitted by corporate officers, directors or major holders, including hedge funds and activist investors. A chief executive selling shares may be a more cautionary signal than a fund manager, he said.

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The TrimTabs report also noted that the heightened level of insider selling comes at a time when stock buybacks are hitting record highs.

According to Todd Gordon of TradingAnalysis.com, this combined with widening disparities in stock leaders and laggers could spell some short-term trouble for the market.

"All these different underlying sentiment indicators are saying we could have a little bit of pullback here," Gordon said Wednesday on "Power Lunch." "Eventually I think the market stabilizes and we rally into 2016, but a pullback looks imminent."

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