The market has made a nice rebound in recent months, instilling confidence in investors that the worst is over.But there's at least one negative indicator: Insiders are dumping stock. Charles Biderman of market research firm Trim Tabs tells Fortune that there were $31 worth of insider stock sales for every $1 in buying during the month of August. Worse, this comes at a time when public companies are raising money through stock offerings while putting the brakes on the share buybacks that were giving a boost to the stock market until the recent bear market.
It's easy to pounce on the insider selling as a sign that more bad stuff is ahead -- and that's certainly a possibility. As a rule, there are really only two reasons for insiders to sell stock: They think that the company is overvalued and/or going down the tubes, or they have their own personal financial reasons for selling that aren't a reflection on their companies' prospects.
Look at the situation most executives have found themselves in in recent months: While their stock portfolios have rebounded, they're still way, way off their highs of a few years ago. And most CEOs own high-end homes (duh), which have been absolutely thrashed by the real estate beat down that hasn't turned for the better yet.
The combination of plummeting real estate values -- particularly concentrated at the high-end -- and a rebounding stock market has left executives overweight equities and for those who were living beyond their means (yes, it happens to CEOs too), stock is the most liquid asset available.
That's not to say that insider dumping isn't a bad sign. But in these unusual times, there could be a reasonable explanation for it that it doesn't mean the market's about to tank again.
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