As Wall Street strategists intensify warnings about a looming market pullback, corporate insiders aren't showing any fear.
The recent dip in major averages has brought insiders off the sidelines, even though the S&P 500 was down just a little more than 2 percent from its all-time high heading into Tuesday trading. Argus Research tracks the level of buying from corporate executives of their own company stocks and said the current ratio indicates 1.94 sell transactions per every buy.
While similar readings sometimes can be contrarian indicators — when sentiment moves too far in one direction, that's a signal to go the other way — Argus said its ratio does not work that way. When the market swoons, it's important when insiders show confidence that the decline won't last long.
Argus analyst David Coleman said insider behavior will be a good indicator of whether those predictions for a market pullback come true. He noted that insider buying and selling has been especially brisk, with 1,638 transactions recorded over the past week, compared with an average of about 800 during the recently completed corporate earnings season.
"Should we see a further decline in the broad market averages, we would expect insider sentiment to strengthen further because insiders historically take advantage of periods of consolidation to increase their holdings," Coleman said in a note.
"Should stocks fall further and insiders fail to step up to the plate, that would be a cause for concern," he added. "For now, we are cautiously optimistic."