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September Insider Update

10/11/04 08:27:54 AM
by Matt Blackman

Insider buying dropped to half of what it was in August for the lowest monthly buying level since October 2003, while insider selling remained strong. What does it mean?

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Corporate insiders purchased just $91 million worth of their companies' shares in September compared to $180 million in August, according to the latest Thomson Financial client insider advisory. It was the lowest level in nearly a year. Insider selling remained strong, with $2.5 billion in stock being sold during the month, which was slightly less than the $2.9 billion worth of shares sold in August.

Thomson Financial's leading indicator of executive sentiment, the insider sell/buy ratio, jumped out of neutral territory from a reading of 16.55 in August to a decidedly bearish reading of 27.30 in September: Insiders sold $27.30 worth of shares for every $1 purchased (see Figure 1). Any reading below 12 is considered bullish, and above 20, bearish.

Figure 1: Ratio Insider Sells/Buys. The leading indicator of insider sentiment during the last 23 months showed a recent increase in insider selling activity compared to buying. Data provided by Thomson Financial.
On a quarterly basis, insider share purchases declined quarter over quarter from $421 million to $367 million, but the current quarterly figures represent the second highest level since the start of 2003 while selling declined for the second consecutive quarter for the lowest quarterly level since second-quarter 2003, according to the Thomson Financial Insider Research team. So on a quarterly basis, at least, the sell/buy ratio improved from 22.0 (bearish) to 19.6 (neutral) for the lowest reading since first-quarter 2003.

Some notable insider buying mentioned in the September advisory included:

Coca Cola (KO), UTStarcom (UTSI), and Simon Property Group (SPG).

In his October 10th "Magic T" newsletter, insider analyst George Muzea commented that insiders are finding little value at current price levels. He believes that it will take a "decisive break" below 10,000 in the Dow Jones Industrial Average to get them to buy aggressively.

While quarter-over-quarter buying appears to still be strong, putting insider sentiment in neutral, the monthly sell/buy ratio increase of 65% cannot be ignored. Muzea recommends that his clients focus on buying stocks that are depressed in price rather than chase stocks moving higher. His Insider and Advisory Sentiment indicators are in what he refers to as the "Stay Out Phase."

Suggested reading
Blackman, Matt [2004]. "August Insider Update," September 9,

_____ [2004]. "July Insider Update," August 9,

_____ [2004]. "Insiders Continue To Trade Shares For Dollars," April 13,

_____ [2004]. "Insiders Aren't Buying The Bull," March 11,

Muzea, George [2004]. "The Magic T" newsletter, October 10.

_____ [2003]. "The Vital Few Vs. The Trivial Many," Literary Press,

Seyhun, Nejat H. [2000]. "Investment Intelligence From Insider Trading," MIT Press.

Thomson Financial [2004]. "Insider Sentiment Bearish On Lackluster Buying," October 5, Thomson.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at

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Date: 10/11/04Rank: 3Comment: 
Date: 10/14/04Rank: 4Comment: Did you notice that this measurement is inversely relative. I think the bullish/Bearish labels are backward. Buying signaled downside. the entire rally of 03 was sold by insiders . I could see selling near the top, as shares are passed from the knowers to the think-they-knowers, but 10 months of it? What am I missing here?

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