Sunday, September 13, 2009

Insider trading is more bearish.

Directors, owners and top managers, in other words, insiders, have turned to be more bearish. In recent months there is a growing volume of sold shares from insiders. In August, U.S. sales by insiders more than 30 times exceeded the volume of insider purchases (historical average is around 7:1). This ratio is the highest since 2004 and many investors may signal that if their companies do not believe their majority owners and management is probably something wrong.

High proportion of sales by insiders is not itself a clear signal to investors to start selling shares. There are several reasons, such as corporate programs in which the owners could sell large blocks of shares of its securities only in defined time intervals. Another reason may be grounds for a private investors which simply need more money in cash. This year may be the reason also profit taking after many insiders noticed a significant loss in last year.

For this reason, many investors do not take the increasing volumes of insider sales as a relevant reason to start reducing their positions in the markets. Among the experts is much more popular the opposite situation, where shopping is dominated by insiders over the sale, which is generally considered as a very strong signal for buying. This happens very rarely, because insiders receive a majority of the shares as a form of remuneration or the incentive programs.


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