Corporate executives and directors are selling stock before earnings season begins to ramp up. The ratio of the total amount of stock sales versus stock purchases in the last week was almost 5-to-1, according to the Vickers Weekly Insider newsletter. The 8-week moving average of this ratio is more than 4-to-1, according to Vickers.
"It is not uncommon to see our readings reflect large sentiment swings during earnings seasons,” wrote Vickers’ David Coleman, an analyst with a long track record of decoding and investing upon insider transactions. “Still, given the recent decline in overall insider sentiment, we caution that the recent rally may be winded.”
Stocks treaded water today after Alcoa’s earnings report failed to meet expectations, sending the first Dow Industrial Average member to report for the first quarter down more than 2 percent. Alcoa is not seen as an overall barometer of the economy, but one company that is, Intel, reports after the bell.
Since there is usually always more insider selling because of options expirations and other factors, Vickers considers any ratio below 2 sales for every one purchase to be bullish. Above 2.5-to-1 is bearish. These readings “are clearly bearish,” wrote Coleman.
One of the stocks that Coleman likes least based on insider selling over the trailing 90 days is Google, which reports on Thursday. Salesforce.com is at the top of the Vickers sell list.
“The market could be in for a choppy stretch during the reporting period,” wrote Jason Trennert, chief investment strategist at Strategas Research Partners, in a note to clients yesterday. Trennert cites the number of positive preannouncements from companies heading into this season. It’s been unusually high so a lot of the good news may be priced in.
“We would continue to see such pullbacks as buying opportunities however,” wrote Trennert. “As the absolute level of earnings and the more likely participation of the retail investor in the equity market rally could propel” the S&P 500 well above 1260.
What to watch for as the earnings season unfolds: will executives be buying those pullbacks as well?
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