Does insider bailout mean bearish mood?

0 Comments | Insight on the News, Jan 7, 2003 | by Jamie Dettmer

Corporate executives--the people meant to know the most about their companies--aggressively dumped shares in their firms in November. The insider bailout prompted fears that the stock market's two-month upswing is about to fizzle, which raises the question of whether the upswing was just a trader's rally or whipsaw and not the beginning of the brave new bull market some optimists claimed.

The bailout may have more to do with concerns that corporate-earnings estimates have been way too high rather than insiders worrying that a double-dip recession is just around the Christmas corner. Even so the selling has been significant, according to Thomson Financial, which says stock sales jumped to $2.6 billion in November from $1.2 billion in October. The selling of tech stocks by corporate insiders was even more telling, skyrocketing 250 percent. Insider buying was up just 5 percent, to $193 million.

The sell-off may not be evidence of a bearish mood, say optimistic analysts. The poor market performance this year may have encouraged the sellers to opt for profit-taking. James Denney, manager of the Electric City Value Fund, isn't so sure. He argues that "when you see bunches of selling, it tells you insiders think it's a good time to get out."

JAMIE DETTMER IS A SENIOR EDITOR FOR Insight.