Corporate Insiders Start To Sell Shares At Record Levels, Insider Selling May Signal Market Top

Corporate Insiders Start To Sell Shares At Record Levels, Insider Selling May Signal Market Top

market top
Corporate insiders start to sell shares at record levels. Insider selling may signal a market top. Analysts warn against reading too much into it. Trader Thomas Lee works on the floor of the New York Stock Exchange, Feb. 28, 2020. (AP Photo/Richard Drew)

Larry Fink, the billionaire CEO of the world’s largest asset manager, BlackRock Inc., sold $24.2 million of stock — about 5 percent of his stake in the business — bringing his sales this year to $74.4 million, according to Bloomberg.

It’s part of a switch among corporate insiders from buyers to sellers, Bloomberg reported: “Corporate insiders, whose buying correctly signaled the bottom in March, are now mostly sellers. Almost 1,000 corporate executives and officers have unloaded shares of their own companies this month, outpacing insider buyers by a ratio of 5-to-1, data compiled by the Washington Service showed. Only twice in the past three decades has the sell-buy ratio been higher than now.”

Over the past four weeks, companies with insider selling have outnumbered those with buying by 186 percent, approaching the 200-percent level that has tended to mark short-term market tops in the past decade, according to Jonathan Moreland, director of research at InsiderInsights.com.

Insiders who have sold shares of their own companies this month include Morgan Stanley CEO James Gorman and UnitedHealth Group Inc. Chairman Stephen J. Hemsley.

CEOs were among the few daring enough to hunt for bargains during the March rout, snatching up shares at the fastest pace in nine years as stocks plunged into the fastest bear market on record.

A market top refers to the price peak of an asset during a trading period, prior to a period of decline in price. Short and mid-term traders such as day traders often rely on watching for tops and bottoms in price fluctuations to time their trades, according to Investopedia.

For example, if a stock has been on a bullish trend for a long time and later begins to decline, the market top is the highest price during its bull market.

“Fink has been ‘been around the block.’ He has seen his fair share of bubble & bust cycles. Let some of these ‘don’t fight the FED’ people HOLD the BAG at the TOP, before the house of cards blows up. Let some of these ROBINHOOD gamblers buy from FINK,” The Moguldom Nation CEO Jamarlin Martin tweeted.

James DePorre wrote about market tops in a column for Real Money in early June. DePorre is the author of “Invest Like a Shark: How a Deaf Guy With No Job and Limited Capital Made a Fortune Investing in the Stock Market.” He operates sharkinvesting.com, an interactive online community.

“Losses almost always come faster and more abruptly than gains,” DePorre wrote. “If you don’t move fast then you will see sharp drops. Keeping accounts close to highs is the best thing you can do in order to compound gains and that means cut losses fast.”

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Stocks rebounded from the March bear-market selloff, with the S&P 500 rising more than 45 percent from its March low. Now tech stocks are at all-time highs despite the pandemic and recession.

Some analysts have warned against reading too much into insider sales. “We still don’t trust the market’s recent recovery,” Moreland said, according to Bloomberg. “Our indicator is now flashing a warning sign. I’m not prepared to say everybody should sell everything and short the market because of the recent insider data. The way I’m using it is, I’m more comfortable selling some of my winners.”

Less than 200 corporate insiders bought shares in July, compared with a 1,160 per month average during the first six months of 2020, Washington Service data show.

In terms of total value, insiders sold $52.6 million of shares last week compared with $3.4 million of purchases, according to Bloomberg data.