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Corporate insiders dump stocks in cautionary sign for markets

Corporate insiders at U.S. public companies sold off their company stock at a rate of knots last month following October's rally, which was the best month for U.S. stocks in the last for years.

Insiders, or directors, officers and employees that own shares in their own company dumped $7.6 billion worth of shares, marking the second highest monthly volume this year and the fourth-highest in the last three years, according to data compiled by equity research firm TrimTabs.

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Scott Mlyn | CNBC

"Insiders aggressively ramped up their selling in the wake of the big October rally, which is a cautionary longer-term sign for U.S. equities," said TrimTabs chief executive, David Santschi.

"The last time insider selling was higher was back in May, and the S&P 500 fell 6.4 percent in the following three months," he added.

Directors dumping their own companies' stocks can be seen as a bearish sign, as employees usually buy shares on anticipation the price will rise. Any corporate insider trading their own securities must report their trades to the Securities and Exchange Commission (SEC).

Insiders took profits after major U.S. equity averages logged their best month since October 2011 last month. The tech-heavy Nasdaq Composite rose nearly 9.4 percent for the month, while the blue-chip Dow and S&P 500 each ended the same period more than 8 percent higher.

The strong October gains followed steep declines in August and into September, on worries about soft global growth just as the U.S. Federal Reserve looked set to raise interest rates.

While insiders have been selling stocks, companies have been repurchasing their own stock, U.S. firms have spent a record amount of corporate cash so far in 2015, some $1.37 trillion on company buybacks and takeovers.

"Amid a slow-growth economy, insiders are spending loads of shareholders' money on takeovers and buybacks to boost revenue as well as earnings per share, but they're selling hard with their own money," Santschi added.