Market Indicators - Investor Sentiment

Top 854. Dec 12, 2003 10:11 PM

» Normxxx - November Insider Stock Sales Hit 2-Year High

November Insider Stock Sales Hit 2-Year High

By Joseph A. Giannone
Thu Dec 4,12:16 AM ET

NEW YORK (Reuters) -- Stock sales by top U.S. corporate executives reached their highest level in more than two years in November, a bearish signal at a time when the stock market has surged amid strong growth in the economy and company earnings.

Last month corporate executives cashed in $4.5 billion worth of their own companies' shares, up 43 percent from October and nearly double the five-year monthly average, according to Thomson Financial's Insider Research, which tracks insider transactions.

Meanwhile 3,680 executives from 1,592 companies engaged in share sales. Both measures set five-year highs.

In recent weeks investors have been barraged by positive economic data and better than expected third-quarter earning reports, sustaining a rally in U.S. stocks. On Wednesday the blue-chip Dow Jones Industrial Average and the broader Standard & Poor's 500 Index reached 18-month highs, while the Nasdaq Composite Index briefly broke the 2,000 barrier for the first time in 22 months before pulling back.

Yet heavy insider sales could give investors pause, since top executives and directors are perceived as knowing their company's prospects best and therefore the figures can serve as a gauge of executive confidence.

Technology company executives sold $1.3 billion of company stock last month, the sector's highest level of profit-taking activity since early 2001. Finance sector sales reached $802 million, its highest in five years, while healthcare executives disposed of $580 million worth of shares.

Insider Research also observed that 56 companies so far in the fourth quarter have exceeded their highest quarterly volumes in at least five years. Among these companies were CBRL Group (Nasdaq:CBRL - news), Genzyme General Corp. (Nasdaq:GENZ - news), Nike Inc. (NYSE:NKE - news), Rite Aid Corp. (NYSE:RAD - news) and Sears, Roebuck & Co. (NYSE:S - news), Insider Research said.

Stock-buying activity last month also pointed to a waning of confidence. Insider purchases rose 67 percent to $105 million from October, well below the historical five-year monthly average of $172 million.

Moreover $42.98 were sold for every $1 of stock purchased last month, the seventh straight month the sell-buy ratio remained in "very bearish" territory -- well above the $20 mark. Still that represents an improvement from October, when the ratio hit $59, its highest level in at least a decade.

Among those identified taking advantage of robust prices were executives at Fortune Brands Inc. (NYSE:FO - news), which saw its first insider sales since July and whose shares recently reached an all-time high.

And six XM Satellite Radio Holdings (Nasdaq:XMSR - news) executives combined for the biggest quarterly sales volume and their first disposals since late 2000. The company's shares surged 10-fold in the past year, Insider Research said.

Fourth-quarter activity at credit card issuer Capital One Financial (NYSE:COF - news) reached record levels, continuing a trend of increasing sales. Lee Enterprises Inc. (NYSE:LEE - news) insiders posted the biggest combined sale as its shares trade at record highs.

Meanwhile retailer Saks Inc. (NYSE:SKS - news), hovering near a 52-week high, saw its highest sales levels since 1999.

-- posted by Normxxx

Top 855. Jan 5, 2004 11:25 PM

» Normxxx - 2003- Sell Out By Insiders

U.S. Officers, Directors Bought Less Stock, Sold More Last Year full text

Jan. 5 (Bloomberg) -- U.S. executives and officers cut purchases of shares in the companies they control by 29 percent in 2003 to an eight-year low, while increasing their stock sales by a third as equity markets rebounded.

Purchases by so-called insiders fell to $1.87 billion, the fourth straight yearly decline, according to the Washington Service, which tracks Securities and Exchange Commission filings. Mexican billionaire Carlos Slim was the biggest buyer, acquiring shares of SBC Communications Inc. Sales jumped 34 percent to $42.6 billion, led by Microsoft Corp. Chairman Bill Gates and Dell Inc. Chief Executive Officer Michael Dell.

Inside buyers and sellers may figure U.S. stocks, which surged in 2003 after three annual declines, have little room to rise, said Joseph Quinlan, chief market strategist for Banc of America Capital Management. Standard & Poor's 500 Index gained 26 percent in 2003, while profits grew an estimated 17 percent.

``They are taking advantage of a bull-market rally after a three-year bear market,'' said Quinlan, whose firm oversees more than $300 billion. ``Some of the valuations are stretched.''

The value of sales has exceeded purchases by at least a 20- to-1 margin for the past eight months. On 11 of the 16 times that happened, the stock market declined six months later, according Lon Gerber, Thomson Financial's director of insider research.

Selling increased for the first time since 2000, when Internet and computer-related stocks pushed the Nasdaq Composite Index to a peak of 5132.52 in March of that year. Insider sales crested that year at $80.1 billion.

The Washington Service figures include filings through Dec. 30.

Paying Attention

Investors say purchases by executives and directors may be a better indicator of a stock's prospects than insider sales. Insiders have many ways to use their money, and buying shares is seen as a sign of confidence. Insiders tend to sell for all sorts of reasons -- to buy a house, diversify investments or because they suspect the stock is near its peak.

Sales by insiders started accelerating in June. In the past eight weeks, the number of sales transactions exceeded buys by a 7.1-to-1 margin, according to the Argus Vickers Weekly Insider Report. The number of sales, on average, exceeds purchases by 2- to-1 to 2.5-to-1. The ratio hadn't topped 7-to-1 until last year, the highest in the 32 years the newsletter has kept data.

``They are selling now because they think stocks are overvalued significantly,'' said David Coleman, editor of the Vickers report.

The Standard & Poor's 500 trades at about 28 times the past year's per-share earnings of its members. While that multiple is less than half its peak of 63 in March 2002, the level exceeds the average multiple of 20 in the first half of the 1990s before the boom in Internet and computer-related stocks.

Profit growth is forecast to slow next year to 13 percent, according to analysts surveyed by Thomson Financial.

-- posted by Normxxx

Top 856. Jan 8, 2004 6:23 PM

» Normxxx - Bank Credit Analyst Says ...

Tech Insiders: Change Of Heart?
2004-01-08 08:33:00

Apart from periodic short spurts of relative strength, the S&P tech sector has more or less performed in-line with the overall market since last autumn, as tech shares have quickly run into selling pressure whenever prices strengthen. However, there are still low odds of a major correction, based on the behavior of tech corporate executives: insiders are finally writing fewer sell tickets. The insider sell/buy (S/B) ratio for the tech sector has hooked down after an explosive rise during the liquidity-driven rally of 2003, aided by a modest uptick in buying activity. Nevertheless, we doubt this reversal represents a buy signal for the tech sector. The level of buying remains anemic, even relative to the 2001-2002 period when profits were imploding and the global economy was still weak.

While tech stocks will be constantly facing the hurdle of high valuation, a major resurgence in insider buying would be a supporting factor for this sector. Stay neutral.

[Normxxx Here: Warning: The research paper on insider market timing says that the insider selling drops again about 6 months before the market does. ]

-- posted by Normxxx

Top 857. Jan 9, 2004 11:59 AM

» cmag1 - Re: Bank Credit Analyst Says ...

In response to message posted by Normxxx:

It's interesting to see the high level of buying at the top of the bubble. Now we are in a low level of buying and were in a low level for all of 2003. Maybe tech insiders are not "smart money." Maybe tech insiders (with the liberal options policies) have become dumb money! That is to say, we now have people who don't have a clue about long term business/stock valuation running tech companies because of the period of recent history where things were so out of whack, and because so many employees are "insiders" at many tech companies.

-- posted by cmag1

Top 858. Jan 11, 2004 6:08 PM

» Normxxx - Re: Re: Bank Credit Analyst Says ...

In response to message posted by cmag1:

The market has been up seven weeks in a row. There's not been a seven-week run in stocks since before the top. The last time this happened was in the beginning of 1998, and from lower levels. You could bet that the same will happen this time, but that sounds like betting against the odds.

One of the indicators that's stuck in the Bermuda triangle--with a sell signal--and which suggests that there will be tears of blood after a climactic top is reached is the percentage of NYSE stocks above their 200-day moving averages. Last time socks were so overbought on a longer-term basis was over 20 years ago--and it did not end well.

The market is not a one-way street. Sooner or later, there will be substantial oncoming traffic coming in the opposite direction. Avoid a collision.

-- posted by Normxxx

Top 859. Jan 12, 2004 12:13 AM

» azxcvbnm - Re: Re: Re: Bank Credit Analyst Says ...

In response to message posted by Normxxx:

What's frustrating is that later can be a very long time indeed. For those who sold in 1998, they had to wait 5 years for vindication. Five years is a long time in human terms, and much too long for me to stand psychologically. Everything looks rosy this year, with the Fed unlikely to raise rates and corporate earnings still strong. That's why I haven't sold anything this year as I had planned to do. I've even made all my IRA contributions for this year already, though the majority of my money has gone to international and emerging markets. Yes you can use asset allocation, but even reducing equities by 5% and being wrong is still bothersome, and I pray that I will be only 30-40% in equities in the next bear market, whenever that comes. Right now, I'm 70% equities, 30% bonds.

-- posted by azxcvbnm

Top 860. Jan 12, 2004 8:43 AM

» Normxxx - Re: Re: Re: Re: Bank Credit Analyst Says ...

In response to message posted by azxcvbnm:

What can I tell you? You can study 2000 to see how little warning you get of a serious market break, but even having lived through it, you are still willing to gamble (along with millions of other) that you will somehow manage " to get out in time" and not be whipsawed or suffer serious loss. My own method is to use the modified "seasonal timing system" (STS) to sidestep serious loss (see http://www.syharding.com/sts.html ). STS experienced only a small loss in 2000 (less than the market) and in 2003 it gained about half what the market did (since it sat out the summer). However, it has made 15% a year, annualized, vs less than 4% for the market over the last 6 years.

I also use "other" asset areas (such as REITs, Gold, Bonds, and Emerging Markets) which have done well over the past several years. I am planning to add a non-PM "commodities" asset class on the next dollar surge (see http://www.zealllc.com/2004/relausd.htm ).

Since I have reached CM, I do not feel the need to shoot for that last gasp of profit. I prefer less risk and variability.

If you think everything "looks rosy" for 2004, you'd better check out some bear signs http://www.suite101.com/discussion.cfm/i... .

-- posted by Normxxx

Top 861. Jan 23, 2004 8:27 AM

» Normxxx - Investors have irrational expectations on returns.

PSYCHOLOGY AND MONEY: Investors have irrational expectations on returns full text

BY JOHN DORFMAN | January 19, 2004 |
BLOOMBERG

The Seventh Congress on Psychology and Investing in Boston included several interesting points.

Here are highlights:

What do losses mean?
Psychiatrist Richard Geist pointed out that the way an individual reacts to investment losses is tied to the way he or she has reacted to other losses in life, such as the death of a loved one or a divorce.

Geist, an instructor in the psychiatry department at Harvard Medical School, said, if people haven't resolved past emotional losses, market losses can trigger denial or depression.

From an investment point of view, denial is bad because it can lead to ignoring widening losses. Depression is bad because it can induce an investor to dump a stock just to get rid of the reminder of a loss.

Individuals are especially prone to make investment mistakes on the anniversaries of significant personal losses in their lives, Geist said.

Irrational expectations
As recently as the 1970s, most finance professors scorned the idea of mixing psychology and investing, said academic and author Robert Shiller.

Shiller is professor of economics at Yale University, a fellow at Yale School of Management and author of "Irrational Exuberance" (Broadway Books, $15.95).

Until recently, he said, most academics believed the stock market was governed by "rational expectations."

Stocks allegedly sold for the "optimally estimated present value of future cash flows," Shiller noted. He was among the first to question that theory, pointing out that it fails to account for the market's heaving volatility.

"The market does not move consistently with interest rates, consumption," dividends or productivity, he said. He believes investment bubbles such as the Internet stock craze of the 1990s in the United States and the tulip bulb mania of the 1630s in Holland drive a stake through the heart of rational-expectations theory. To Shiller, the existence of bubbles is proof that investors have irrational expectations, not rational ones.

-- posted by Normxxx

Top 862. Jan 23, 2004 8:48 AM

» Normxxx - Market Liquidity?

Elsewhere, I have stated that my personal measure of 'market liquidity' was about as low as late 1999 - early 2000. So the question is, "Where is the additional money coming from?"

Well, a lot of it is coming from the Stock Market Mutual Funds as investors pour in 'new' money. But a lot of it is coming from . . .

Margin Debt Snaps Back

By Rebecca Byrne | 01/23/2004 06:57 AM EST
TheStreet.com Senior Writer

Nothing speaks to investors' increased appetite for risk like the recent rise in margin debt.

Online brokers Schwab (SCH), E*Trade (ET) and Ameritrade (AMTD) all reported that margin loans shot up in the fourth quarter and were significantly higher over the course of 2003. The question now is: What does this mean for stocks?

When investors buy "on margin," they are borrowing money from their brokers to purchase securities, using shares they own as collateral. When margin debt starts to grow quickly -- as it has been recently -- some analysts become uncomfortable because it can be a sign that investors are getting too optimistic about the market and are taking on too much risk.

In the most recent quarter, Ameritrade and E*Trade saw margin debt jump more than 20% while margin balances at Schwab increased by 13%. The trend has apparently continued into this year, with Ameritrade reporting a $300 million increase in margin debt so far in January.

"Online brokers' margin debt is growing dramatically, [which] says there's no fear in the market," said Charles Biderman, president of Trim Tabs. "Enthusiasm is bubbling up."

On Friday, the New York Stock Exchange is expected to release margin data for December, and Biderman expects it to show that investors took on more debt. The latest available statistics for November show that margin loans at NYSE member firms hit $172.1 billion, up from $162.7 billion in October and well above the $134.4 billion level recorded at the end of 2002.

Biderman worries that the market could be in for a repeat of 2000, when margin debt hit extreme levels. As the market started to crumble that year, brokers demanded that investors repay the money they had borrowed, which prompted a wave of selling.

Still, other analysts are less concerned. After all, an increase in margin debt indicates that the market is receiving a heavy dose of liquidity, which can bode well for stocks over the near term.

-- posted by Normxxx