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?
For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC. To play Fast Money’s bracket challenge, go to fastmadness.cnbc.com.
Got something to say? Send us an e-mail at firstname.lastname@example.org and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to email@example.com.
Trader disclosure: On April 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (CSX) call spread; Najarian Owns (LVS) call spread; Najarian Owns (JPM) call spread; Najarian Owns (BAC) Calls; Najarian Owns (C) Calls; Najarian Owns (CSX) Call spread; Najarian Owns (LVS) Call spread; Najarian Owns (JPM) Calls; Najarian Owns (PCX); Najarian Owns (TXN) Calls; Najarian Owns (VLO) Calls; Najarian Owns (YUM) Call Spread; Adami Owns (INTC), (GS), (AGU), (MSFT), (NUE), (BTU), (C) ; Finerman's Firm Is Short (IJR), (MDY), (IWM), (IYR); Finerman's Firm Owns S&P Puts; Finerman's Firm Owns (JPM); Finerman Own (JPM) ; Finerman Owns (BAC); Finerman's Firm Owns (BAC); Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Owns (TGT); Finerman's Firm Owns (WFC) Preferred; Finerman Owns (WFC) Preferred; Finerman Owns (YUM); Seymour Owns (CHL), (DRYS), (GE), (BAC), (EEM), (F), (INTC), (LVS), (SBUX); Seymour's Firm Owns (POT)
For Patty Edwards
Edwards Owns (JPM) for Clients
Edwards Owns (INTC) for Clients|
Edwards Owns (GS) for Clients
For Citi analyst Donald Fandetti
Citi Owns (AXP)
Citi Owns (COF)
Citi Has Provided Baking Services To (AXP)
Citi Has Provided Baking Services To (MA)
Citi Has Provided Baking Services To (COF)
Citi Expects To Receive Compensation from (AXP), (V), (MA)
Citi Has Acted As Manager or Co-Manager Of Offering of (AXP), (COF)
Citi has Managed a Securities Offering of (YUM)
Citi Has Received Compensation from (YUM)
(YUM) is an investment banking client of Citi