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Company insiders are dumping stock at levels 'rarely seen,' report indicates

Lester Lefkowitz | Getty Images

Chief executives may profess loving a pro-business president in the White House, but they are saying something else with their money, and that could be a worrisome sign.

Chief executives and other corporate insiders are selling stock hand over fist now that the quarterly earnings season is over, a report from Vickers Weekly Insider shows. Transactions by insiders are restricted around a company's report.

"Insider selling has jumped again, and this time to levels rarely seen," analyst David Coleman wrote in Monday's note.

In the last week, insiders' sale transactions on the NYSE outnumbered their purchase transactions by more than 11 to 1, according to Vickers, a publication of Argus Research. The 11.47 reading is 3.5 standard deviations above the mean, according to Coleman.

The report gives context on the historical relationship between the market and its insider readings:

"The last time we saw both reading at such elevated levels was in early 2014, when the total reading hit 8.3 and the NYSE/ASE reading was 6.16. In response, the S&P 500 fell from 1844 to 1741 between 1/22/14 and 02/03/14. On February 14, 2007, the NYSE/ASE reading was 11.77 and the Total reading was 7.99 Again, the S&P 500 fell — this time from 1455 to 1387 within a matter of days."

Vickers tracks its sell/buy ratio over a period of varying time lengths in order to get a better idea of whether one week is part of a bigger trend. Its longer-term eight-week ratio for all U.S. stocks shows this is not just a short-term trend, with 5.98 buy transactions for every sale over the last two months. On the chart below, the eight-week sell/buy ratio is tracked inversely on the right scale, with the stock market on the left scale. The research shop does it this way to illustrate the divergence between insiders and the market: The Dow Jones industrial average keeps going higher, yet insiders keep dumping stock.

Source: Vickers Weekly Insider

Writes Coleman: "The number of insiders participating in the selling is significant. That would seem to imply that equities might be ripe for some level of correction."