STREET DOGS

There’s nothing to trigger anxiety like a big sell-off by company insiders. And, according to CNN Business, there has been no shortage of insider selling in the US of late.

“The leaders of Corporate America are cashing in their chips as doubts grow about the sustainability of the longest bull market in American history,” said the financial news and information website last week.

“Corporate insiders have sold an average of $600m of stock per day in August, according to TrimTabs Investment Research, which tracks stock market liquidity. August is on track to be the fifth month of the year in which insider selling tops $10bn. The only other times that has happened was in 2006 and 2007, the period before the last bear market in stocks.”

But Nicholas Colas, co-founder of DataTrek Research, says rather than reflecting a lack of confidence, the selling may simply be the result of insiders bracing for leaner compensation.

“Most managers get paid on earnings growth. If they anticipate bonuses will slow, they will sell stock to make up the gap. It’s one more sign that managements know this will be a tough year for growing earnings.”

Still, while you don’t want to read too much into the sale of shares by a few executives, a wave of insider selling sends a clear message that you ignore at your peril. Prolonged selling can only heighten that misgiving. We grow anxious about what the market knows that we don’t.

“It signals a lack of confidence,” says Winston Chua, an analyst at TrimTabs. “When insiders sell, it’ sa sign they believe valuations are high and it’s a good time to be out the market.”

CNN Business says buybacks, another sign of confidence, have also slowed. “US companies announced $2bn of buybacks per day during earnings season … the weakest pace in two years.”