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Insider Selling for Stocks is Surging. Caution is Warranted.

The Vicker's Weekly Insider Report does the hard work of aggregating insider transactions from SEC reports filed on a regular basis. Insider transactions are the purchases or sales of a company's stock by the corporate executives who run that company. If corporate executives are buying their own stock, it is generally a good sign of confidence given how intimately they know the company's position, relative health, and potential for stock market gains based on growth or exciting developments.

On the other hand, when corporate insiders are selling their own company's stock, especially if it falls outside of the normal sales that attend annual compensation packages, this could be a major red flag. This type of activity could point to a loss of confidence by key leadership in the company's near-term growth prospects, or may simply reveal a belief that the company's stock is overvalued at this time. It certainly goes against human nature for a person to sell stock right before good news or a potential jump in price. Thus insider selling, at best, is a likely indication that no good news is coming in the near term. Who would know better than the executive management?

With that in mind, please note that the Vicker's report reveals that at the recent stock market levels, insiders are selling their companies' stock 9 times more than they are buying it. This is just one indicator of market sentiment, but it is an important one and a warning sign to watch out for a potentially imminent downturn in prices.

Given our recent rise to highs not seen in years and with increasingly optimistic headlines, I believe we are getting closer to a market correction. For those of you who have stock market exposure, I recommend tight stops to limit losses should we experience a deep drop in prices. For those of you who are sitting on the sidelines thinking that you might be missing the train, I recommend that you stay on the sidelines and miss the train wreck that might be coming. There are a lot better values and opportunities out there and the market is not at attractive long-term levels at this point.

Written By: Joshua Ungerecht
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insider selling, insider transactions, market correction, risk management, S&P 500, Stock Market