Insider Selling Picking Up the Pace

Pinnacle Digest writes: US jobless claims dropped to a four year low and bond activity in Europe improved Thursday. Combined, this created a nice rally to start the day in North America. However, despite the good news, insiders and waning bullish momentum are causing Chris Ciovacco, of Ciovacco Capital Management, to proceed with caution.


Insider Selling Picking up the Pace


Ciovacco points to the fact that the people running the major corporations, the insiders, are selling at a rate way above bearish indication. He stated ”Consider an index of insider behavior calculated by the Vickers Weekly Insider Report, published by Argus Research, which is based on the ratio of shares sold by insiders to shares bought. Last week, according to the latest issue of the Vickers service, this ratio for NYSE-listed issues stood at 5.13-to-1. To put these numbers into perspective, bear in mind that the sell-to-buy ratio’s long-term average is between 2-to-1 and 2.5-to-1.”


When insiders sell, beyond an amount deemed standard for lifestyle expenses, it is reason for concern. The rate in which insiders have been selling, in comparison to those buying, is very alarming. It is important to note that insiders have been wrong in the past and sold at a high rate when it was later proven ideal to be buying. However, generally they have their ear to the economic pulse and are more aware of potential headwinds than the average investor.


Bullish Momentum Fading


Ciovacco explains to readers that bullish momentum has been rapidly deteriorating since last Friday afternoon. He states that risk on (SPY) vs. risk-off (IEF) is still holding above support lines, but that the technicals are starting to look very similar to those in the pre-correction months of April/May 2012. He notes the lower highs and lower lows which have been taking form in the month of October and the failure of the S&P 500 to exceed the late September high.


In conclusion, Ciovacco states that “We are net long currently by a wide margin, which tells you we believe higher highs are due before year-end. However, we added a hedge (PSQ) earlier this week after seeing bearish set-ups in technology stocks. With maximum flexibility and an open mind, we can maintain our net bullish stance or migrate further toward a defensive stance.”


Click here to read his entire analyses of the S&P 500.